Interrupter CheckmarkInterrupter IconFacebookGoogle PlusInstagramGroupRamsey SolutionsTwitterYouTubeExpand MenuStoreCloseSearchExpand MenuBackStoreSign in

Ask Dave

Getting 5 Percent Back?

Charles thinks he's getting ahead from the 5% he gets back on his credit cards, but Dave's never met a millionaire who made their wealth on that 5% back.

QUESTION: Charles thinks that he can get ahead using credit cards.  He pays no finance charge, gets 5% back, and pays the balance off each month.  He thinks the credit card company is losing money on him.  Is he right?

ANSWER: I have yet to meet a millionaire who says that the 5% they got back on their credit card was what made them wealthy. 

Dunn and Bradstreet say that spending cash hurts and registers psychologically.  They also did a study proving that people who spend with plastic, even disciplined and responsible people, spend 12%-18% more.  Those same people spend 37% more when using plastic at a fast food restaurant and 78% more at a vending machine. 

Even if you’re conservative and only over-spend by 6%-12%, you’re still not winning and you’re taking a risk.  You’re risking that the credit card company will post your payment late and that you’ll get charged with late fees and interest on that balance.  Even if it’s their mistake, you’ll spend the next five months arguing over $29 because these people break federal law everyday.

As responsible as you are, you could probably continue in your credit card spending habits and break even – maybe even make a little bit of money.  But as long as you’re playing with snakes, you’re going to get bitten.  This may not be a big deal for you personally, but it is a big deal for millions of Americans.