If you’ve been participating in this hobby long enough, you probably noticed one running theme: Use your credit card for everything. If you don’t, you are leaving miles and points on the table. I have stressed that fact many times. But is it really always the best advice? As with everything in life, the answer is not quite so simple.
This post on Miles Abound claims that you should always pay cash for everything and do manufactured spending to meet minimum spending requirements on the new cards. The author says that people tend to overspend when dealing with readily available credit.
It’s so much easier to pull out plastic and worry about paying it off later than to part with cold hard cash. There are a few studies to back up this argument.
Actually, I agree with pretty much everything in the post. I have read those studies myself a while back and believe them to be correct. I have also said the same thing in my post on meeting the minimum spending requirements and cautioned people on biting more than they can chew when it comes to sign-up bonuses.
In fact, I know I spend more with credit cards than I would with cash. Surprised? I am fairly disciplined when it comes to finances, but I wouldn’t delude myself into thinking that somehow I have superior powers to resist the call of the plastic.
That said, I will not be switching to cash and doing manufactured spending for minimum spend. Here are my reasons:
1) I like the convenience of credit cards. Also, we live in an area with higher than average crime rate. If someone snatched my purse in Walmart parking lot, I would hate to lose a lot of cash.
2) I do a lot of my shopping online. No need to explain further.
3) Possibilities for m/s in my area are very limited. Besides, there is a fee involved. Sure, it’s only 1 percent, but still.
4) Manufactured spend is risky. Yes, the risk is minimal, but I would hate to take that chance and potentially burn my bridges with a bank like Chase.
5) My husband is the spender and he would not agree to use cash. This one is out of my control!
Image courtesy of stockimages at FreeDigitalPhotos.net
So what I’m trying to say is that I will continue using my limited spending exclusively toward sign-up bonuses, at least for now. I am not opposed to buying a few prepaid cards here and there and have done it before, but it will be an exception rather than the rule.
However, it is an interesting argument and I recommend you read the mentioned post. A word of caution: While the post didn’t contain any offensive language last time I checked, knowing Phil, he could spice it up just to mess with me. Go there at your own risk!
I’ve always said that if you have a hard time controlling your spending, this hobby isn’t for you. If you are in debt, you should focus on getting rid of it first, change your way of thinking and doing things, and only then go after sign-up bonuses. There are several decent financial websites that could help you.
I’m not a huge fan of Dave Ramsey because I find his methods a bit simplistic. Not to mention, he advocates never using credit cards. However, there is no denying that there is a method to his madness, and many people find his approach very helpful and easy to implement.
For the more advanced financial advice seeker, Mr Money Mustache can provide an enlightening read. One caveat: I’ve actually stopped reading it because he drops f-bombs on a semi-regular basis. However, there is no denying that the author is an original, out-of-the-box thinker and non-conformist.
Readers, what other websites would you add to that list?
Click here to view various credit cards and available sign-up bonuses
Author: Leana
Leana is the founder of Miles For Family. She enjoys beach vacations and visiting her family in Europe. Originally from Belarus, Leana resides in central Florida with her husband and two children.
You know, I wonder if there are studies that show how many people get into bad debt because of jumping into this hobby without thinking and making bad spending decisions. I’m sure it’s something that, if it is available many bloggers wouldn’t like to disclose. I have to say though, that most of you guys have been pretty good at warning people of the dangers. I figure that banks have it all figured out. If the bonus have existed for so long it must be because the banks get back in interest and fees what they spend on bonuses.
Leticia, I doubt there are any studies on this, though, I wish they were! Most people who get into financial mess as a result of this hobby would be reluctant to admit it. I have absolutely no doubt that some do get in trouble due to churning. I tend to think that it’s a minority, though. Just my unscientific guess.
You do have to watch your spending because this hobby encourages consumption. Spend X amount=you get these many points. So a person thinks, hey, maybe I should get more cards etc. The banks and bloggers (including myself) make it seem so appealing because most of the time it really is a good deal. But if you end up spending $500 on junk just to get 50,000 miles, then it defeats the point.
Then of course, there are costs associated with travel too. It’s not free even if you are using points. You have to be very careful. I don’t think of this hobby as a means of getting free travel, but rather a deeply discounted trips. I love going places, so it’s a win-win for me.
I honestly think that banks lose money on most miles and points hobbyists. It’s puzzling to me that the gravy train hasn’t come to an end yet. However, what I see happening is that banks are starting to undercut bloggers by offering slightly better offers themselves compared to those in affiliate channels. It tells me that they don’t think that bloggers are bringing them lucrative customers. That’s just a guess on my part.
It’s a hard one. I only do manufacturing spending when I need to. Most of the time, to meet the spending to get a bonus I need to so I go ahead and do it but just like Molly and you, I don’t want to abuse the system, not because I have any cozy feelings for banks but because I don’t want for my accounts to get shut down. If a person did like Miles Abound suggests, only MS I imagine they would be putting themselves at big risk to have problems with the banks.
I do agree with Leana though, even if I am pretty disciplined, I’m probably spending more than I would if I was using cash. I think. One strategy that has worked for me is this one: I get my salary deposited on an account, I have various accounts with the same bank. One is for paying credit cards. What I do right after I make a purchase, or I should say, as soon as I get to a computer, I make a transfer of the money I spent using my credit card from my income account to the other cheking account that I use to pay credit cards. If I’m disciplined enough, by the due date I have the money I need to pay the full amount. That way I can see how much money I’m spending on my “income account”. I have to be checking every day though, sometimes more than once a day.
Leticia, that’s actually a pretty smart strategy on having an account just for credit card bills. That would make you much more aware of what you spend every day. I’m too lazy to do that! You are a perfect candidate for this hobby. I think most people overspend when using credit cards, but I figure, the sign-up bonuses more than make up for it.
Only using your cards for MS is incredibly risky. With a bank like Chase, I refuse to do any serious MS at all. (I don’t MS much anyway). My family puts around $1,200 on credit every month and we would be missing out on all of those points if we were too scared to use credit and overspend. But its all boring stuff- health insurance $449, groceries $600, Cable bill $55, etc.
You just have to pay the bill every week to stay on top of it.
Holly, I agree with you. I’m a scaredy cat when it comes to MS, maybe unreasonably so. I was actually debating on whether to purchase $500 gift cards at Winn-Dixie to maximize Freedom 5% grocery bonus for January-March, and decided against it. I really don’t want to draw any attention when it comes to Chase. Especially now, that they allow you to get the bonus on cards every 24 months. I don’t want to be penny-wise and pound-foolish.
It is an interesting argument, though, and a thought-provoking post. Mostly, because it makes you more aware of your spending habits. It is SO much easier to use credit cards, gift cards etc.