Early 2012, I got my first credit card. Nothing had fascinated me as much as the credit card up to that point. I spent hundreds of hours research how credit works, how to optimally build up credit, what credit cards to get and when I should get them, etc. I was a very active participant in the largest credit discussion board. I devoted a huge portion of my personal finance to credit. In the next 2 years I would go on to add another 10 credit cards to my portfolio.
One of my friends, fascinated by my passion for credit cards, told me I could make money from referring people to apply for credit cards. I didn’t care to do this, because we were just recovering from the credit crisis, and I did not like the possibility of someone getting more credit cards when they had a credit card problem. Many of my contemporaries did not share the same view and started hugely successful blogs that made money from credit card referrals. Million Mile Secrets, The Points Guy, you name it. These blogs significantly altered the credit card landscape, quite possibly leading to a surge in the number of rewards credit cards the average person has. Along with this, rewards credit cards are not as valuable as they used to be since the value of airlines mile has come down big time.
I’m not going to try to be hypocritical. I racked up over half a million miles and still have hundreds of thousands of them today. I got to experience an international first class flight on JAL. My total credit limit exceeded my annual salary. I got a mortgage with one of the lowest interest rates available at the time and in history.
But the golden age of the credit card game is over. I personally pulled out of that game when I started business school and got serious about my life and my career.
Why? Because it’s not worth it. Yes, if you do it right you can get hundreds of thousands of miles or several free international flights each year. But, if you’re the target audience of my blog, you are an MBA. You are making a good salary with limitless career potential. You’ll be better off focusing on your career, getting promoted early and making a higher salary and bonus, than worrying about which credit card to use for which kind of purchases.
Even before I pulled out of the credit card game, I was slowing down. I had read a research paper that shows that rewards credit cards make you spend more. I figured out pretty quickly that even if having a rewards credit card made me buy one thing I otherwise wouldn’t have, all the gains from the rewards might be completely wiped out. Credit card rewards are like store discounts, except that they make you feel like you’re making progress towards something (a reward redemption threshold) and thus induce you to spend more. So there.
I’m not saying you should not own credit cards. Far from it. You absolutely should have a credit card, a few preferably, unless you have a credit card spending problem, in order to build credit. Heck, you may as well get a rewards credit card or two. But don’t think too much about credit card rewards. Think of these as something that’s nice to have. Let the rewards be a surprise, and not something you work towards. Get one good credit card, use it to make all purchases. You’ll find it so much easier to track your expenses, and you’ll be less likely to over-spend. And the rewards then will be truly nice to have.
Richard Anderson 