Credit Card Rewards – Rethink Your Returns

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Would you change your use of credit cards if you discovered the “rewards” are perceived income and not actual income?  What if credit debt was enslaving your nation?  What if both were true… what would you do?

“There is that maketh himself rich, yet hath nothing: there is that maketh himself poor, yet hath great riches.”Proverbs 13:7

Two Predominately Popular Views

The debate over the use of credit cards seems to be divided into two polar camps Camp Rewards and Camp Avoid.  The following is a basic description of both camps and a summary of the view held by each.

  • Camp Rewards – These folks use credit cards to take advantage of the rewards programs they offer.  They tend to use their cards for most purchases leaving their own money in the bank to draw interest all month, then pay the cards off each billing cycle thus evading any finance charges.  This group rarely sees credit card use as a moral issue and tends to believe that consumers should use credit cards only if they do not have enough personal responsibility to operate within the guidelines of the rewards rules.
  • Camp Avoid – These campers avoid the use of credit cards like the plague.  They may or may not have been raked over the coals themselves and usually have a moral conviction that the business practices of credit card banks are abhorrent and may even view their abstinence as a form of protest.  They traditionally believe that using credit cards encourages over spending by creating a dangerous disconnect between themselves and their money.

Having recently shredded and closed all my credit card accounts I am firmly entrenched in Camp Avoid, have waged war on credit card banks, and would like to challenge the members of Camp Rewards to jump ship by providing them with a different perspective on the subject of credit card rewards.

Regardless of the camp you’re in… if you need someone to convince you that the business practices of credit card companies are immoral, then you may want to quit reading now – I cannot help you.  With that in mind, this article will not work to convince anyone of the immorality of the industry but will assume readers already aware of an obvious truth.

Instead… I will set out to convince those dancing the dance of credit card rewards to cut ties with the industry and come join Camp Avoid!  I am not setting out to discredit or dishonor those who use credit to get rewards… but rather am imploring you to take a step back and consider the bigger picture.  I do not judge anyone… but I do live to persuade others to choose the BEST option!

If anyone has been able to fend off the strategies of the credit card banks, they can consider themselves lucky.  “Convenience users” – a term used to describe card users who pay off their balance in full each month—is at an all-time low, representing only 37.4% of the credit-card using population.”  *source from 2004, I’m sure this number is much lower now.

A Different Perspective…

What if the rewards were only perceived and not actual?

Credit card companies would have us to believe that their credit card rewards are ultimately a way to increase our bottom line.  In fact, they spend billions of dollars annually on clever marketing campaigns intended to make us believe we need their “rewards.”

Should we trust their marketing campaigns?  Good question.  I’ll let you form your own opinions on their level of trustworthiness.

Let’s break down a few numbers, read a few quotes, and consider what all is involved concerning credit charges and how they effect the pricing of goods and services in our current economy.

Rewards 101 – Interchange Fees

Interchange fees are fees that a merchant’s bank (the “acquiring bank”) pays a customer’s bank (the “issuing bank”) when merchants accept cards using card networks such as Visa and MasterCard for purchases.

Interchange fees are typically a flat fee plus a percentage of the total purchase price (including taxes). In the United States, the fee averages approximately 2% of transaction value.

In recent years, interchange fees have become a controversial issue, the subject of regulatory and antitrust investigations. Only very large merchants such as Wal-Mart might have the leverage to negotiate fee prices, and while many merchants prefer cash or PIN-based debit cards, most cannot realistically refuse to accept the major bankcard association-branded cards. This holds true even when their interchange-driven fees exceed their profit margins.  Some countries have established significantly lower interchange fees. The fees are also the subject of several ongoing lawsuits in the United States.  –Wikipedia

Because merchants have no control over the fees they are charged, and because fees in the U. S. are the highest of any country in the world – high costs must be passed on to the consumer.

Interchange fees affect the market by raising the cost of consumer goods and services by at least enough to cover the 2% they cost merchants.

Those who have been following our Debt Free Adventure no that we also boycott Walmart and choose instead to shop at local businesses whenever possible.

“Credit card companies typically levy more than $2 in fees for every $100 consumers charge at American businesses… but credit card companies rules prohibit merchants telling consumers about these fees at the point of purchase.”  *source

Price increases for all…

Given the information above we see that interchange fees cost users of debit and cash along with the users of credit.

Each year, in addition to interest, late fees, over-the-limit charges and other fees charged by credit card companies and their banks, consumers pay billions of dollars in hidden fees that never appear on their monthly statements. These hidden charges are called credit card “interchange fees” also known as “swipe fees.”

Major organizations like The National Retail Federation (NRF), National Grocers Association, National Restaurant Association, and advocacy groups such as Americans for Financial Reform have come out in favor of reforming credit card interchange fees.

NRF Senior Vice President and General Counsel Mallory Duncan says, “…banks are driving prices of consumer goods higher by charging merchants more and more for credit card usage. The merchants have to pass the cost back to the consumer, so everyone—not just the people who use credit cards but those who pay cash or by check, too—pays more.” *source

It gets worse.

  • Merchants are legally disallowed, per the terms of their merchant agreements, to disclose this fee information to consumers.
  • Merchants are charged a flat fee and a percentage on every credit purchase you make but cannot legally require a certain amount per transaction for use of credit (though some do so anyway.) In other words, per their agreement with the credit card banks, they cannot require a minimum purchase of say $20 for the use of a credit card to make a purchase.
  • Jim of recently reported his findings of how credit card rewards points translate into cash.  He discovered how the equation credit card banks use is not: [1 point = 1 unit cash].  Instead, after looking into it a bit further Jim found that a more accurate equation would be: [1 point = 0.65 unit cash].  He also found the equation to be unique to each bank… each using different rates of conversion – some higher, some lower.

Unless you are much smarter than I am, the only conclusion to be made is that by swiping our cards we are essentially supporting the construction the infrastructure and industry that raises our prices.  The same industry that is oppressing the poor and exploiting the vulnerable.

“Home Depot pays more in interchange fees than for employee health care.”  *source

So we don’t really make money from rewards… using credit cards actually costs us more money then we could ever make back.  If it were not so credit card banks would not entice with offers to use rewards.  They make ridiculous amounts of money and use rewards as a way to trick us into thinking we are making money.

Rewards 201 – Personal Responsibility

A common point among those who encourage using credit cards for “rewards” hold that those who cannot “use the cards properly” lack personal responsibility.

While I outlined my strong support of personal responsibility, I am also a HUGE advocate of mercy for the poor and less fortunate.

I challenge you to consider how…

Credit card banks prey upon the weak and vulnerable paying millions of dollars to universities and alumni associations alike who buckle and sell the personal information of their students, faculty, staff, and alumni to this vulture industry.  *source 1 & 2

Concerning people with less income and a “taste for plastic” – rather than refusing to extend credit, or giving lower interest rates to them – as Liz Weston suggests – credit card banks continue to issue cards to these people like candy, and do so at interest rates near 30%!

And who do you suppose is one of the largest target markets of credit card companies right now?  People who have recently been through bankruptcy!

Elizabeth Warren reveals what is really going on…

Rewards 301 – Credit CARD Act of 2009

While this legislation was passed in May of this year, it does not go into effect until February of 2010 giving credit card banks nearly 10 months to figure out how they can work their way around any newly imposed restrictions.  If you would like to help push this through faster, check out

How have credit card banks responded?

Simple… they are changing the terms to existing contracts in order to position themselves to make money at the expense of their customers.  Yep – even the good customers like those who pay off their balances in full each month.

Some of the typical changes we are seeing include:

What About Debit Cards?

Unfortunately debit cards are used as credit more than they are used as debit.

You know the drill.  You go to make a purchase and the check out person asks, “debt or credit?”

So what’s the difference?

If you punch in your personal identification number (PIN), it’s an online transaction – it gets completed electronically and it’s done pretty quickly. If you don’t use your PIN and you sign a charge slip instead, it’s an offline transaction. Offline transactions are processed much like plain-vanilla credit card purchases.

Even though you use a debit card, offline transactions are very much like credit card transactions. Your debit card might have a Visa logo on it, for example, so it runs through the Visa network. It’s not a credit transaction, but it uses the same infrastructure.  *source

So who cares whether it is an online or offline transaction?  Merchants. If you use your card as debit, merchants are charged less fees so you can imagine that banks give you heavy incentive to choose credit!  You should care too because as we read earlier… the merchants pass those glorious fees right on down the line.

If you use your debit card as a debit transaction, you are not negating the fees, but you are in effect lowering them.  This is because the cost for debit transactions is less than the cost of credit transactions.

What About Cash?

Unfortunately, because the extreme use of credit has built price hikes into almost all retail pricing situations, even the use of cash will cost you 2% more!

How does that make you feel about rewards? Honestly.

Many merchants would love to give customers a discount for using cash, and some still do!  However, because of the complexity of the issue they cannot typically maintain a system where they charge one price for cash and another price for credit… it’s too cumbersome and costly to maintain.

So why use cash… why not just forget it and continue using credit?

Because it is the right thing to do. I suppose that is the basis of my entire argument summed up nicely in one clear statement.  I am sure I will catch a good amount of flack for this article… but that is fine.  I wanted to present facts to sway your opinion about the use of credit by  showing how it continues to enslave our nation.

Most importantly… do YOU think it is the right thing to do?  If so, then we must ask ourselves if $200 – $400 per month in “credit card rewards” is worth doing what we now think of as wrong.  Maybe you do not see this industry as repressing and destructive.  If that is the case, then I guess I have failed you today.

Like I said above… I do not judge anyone for their use of credit cards – this post has been weighing heavy on my heart and I simply wanted to convey it as honestly and openly as possible with the hopes that I might sway even one existing “rewards” user!

Remember… the more we use our cards as credit, the more we are supporting the existing credit card fee infrastructure.

Consider This A Challenge & Rethink Rewards!

You Have A Vote

Every time we go to make a purchase we can lessen the devastating effect of credit on our nation by simply choosing to boycott the extreme use of credit.  We can use our debit card as debit, or better yet… use cash.  I know it may be a pain, but life isn’t all about money – nor is it about always taking the easy way out.

Whether this credit crisis was our fault or not – doesn’t it feel good to help those who need help?  To have mercy on those who need mercy.  To take a stand for what is right – even if you have to stand alone.  Who cares if you’re the only one standing?  At least you stood!

Switching to cash and debit only transactions will not be an easy change for the wife and I.  But I suppose we will approach it like we do everything else… one baby step at a time.  It will get easier and easier with each passing day – then before you know it making credit purchases will become little more than a bad dream!

Bible wisdom is better than silver and fine gold…

  • “There is a way which seemeth right unto a man, but the end thereof are the ways of death.”Proverbs 14:12
  • “Do they not err that devise evil? but mercy and truth shall be to them that devise good.”Proverbs 14:22
  • “He that oppresseth the poor reproacheth his Maker: but he that honoureth him hath mercy on the poor.”Proverbs 14:31
  • “The eyes of the LORD are in every place, beholding the evil and the good… In the house of the righteous is much treasure: but in the revenues of the wicked is trouble.”Proverbs 15:3,6
  • “He that refuseth instruction despiseth his own soul: but he that heareth reproof getteth understanding.”Proverbs 15:32
  • “Righteousness exalteth a nation: but sin is a reproach to any people.”Proverbs 14:34
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1 Paul @ FiscalGeek

Absolutely fantastic post, and I’m 100% deployed in Camp Avoid. You always know something’s up when Wells Fargo wants to pay you cash back to use your Check Card as a Visa. I hate the idea that my local merchants are just sucking up their interchange fee, at the very least say debit when they ask. Just think about who it is you are really rewarding.

2 Mom

I just received an email from the Consumers Union today. They are a consumer advocacy group associated with the magazine Consumer Reports. They are up in arms about the new credit card legislation taking 10 months to take effect. They are encouraging people to write their congressmen and demand that the new law take effect much sooner, to give the rapacious banks less time to figure out new ways to milk our pocketbooks. I know this is relative to just one aspect of your post, but you are obviously not alone in your stand against these modern day pirates! Good work, Matt!

3 Patrick

I am an admitted credit card user and belong to Camp rewards. I have a rewards card and use it for virtually all my purchases each month and pay it in full. I also know about interchange fees and how they pay for my rewards, but there isn’t much that I, as an individual, can do about that (short of making it my life goal to get it changed). So until the industry changes, I plan on using the tools available. If rewards programs go away, then I would probably still use credit cards because they generally offer better intangibles than debit cards, such as better fraud protection, double warranties on some cards, and a few others. But I totally understand Camp Avoid and think the decision should be based on what is best for each situation.

4 Mom

Another thing, my current employer is bandying about the idea of setting up the option to accept payments via credit card. I have personally been researching the different options. The fees ARE outrageous. I will definitely raise the question to them about the ethical and moral issues surrounding this choice. They are professed Christians; hopefully this will color their thinking in all aspects of doing business.

5 MoneyMateKate

I’m mostly in Camp Avoid, but I would much rather use my credit card than my debit card for online purchases – if anything goes awry, they can’t empty my bank account! Yes, my credit card is a rewards card, but unless I’m making a big online purchase like a plane ticket or a computer, the bill is around $200/month in automatic payments (cell phone, NetFlix, web hosting) and, ugh, craigslist advertising.

I’ve just signed up with a processing service to be able to take credit and debit cards for massage appointments. It’s only worthwhile because my cousin cut his fees to the no-profit-to-him level. He explained that certain fees were outwith their control, like the extra that gets charged for rewards cards, and how American Express has its own, non-negotiable rates. Eye-opening…

6 JoeTaxpayer

I respect your view. It’s in the camp that Baker of ManvsDebt is in as well. The question for me is am I willing to forgo that extra cash, but still pay for it? The price I pay the merchant won’t drop as you agree, so it’s a vicious circle, I view the 2% back as me taking back my own money and do it tax free. The 529 funded 100% with this cash back is now nearly $8000 (it bops up and down with the market) and that $8K would have taken $12K gross to clear. Sorry, for me that’s too much to walk away from on principal. The circle can be broken when stores refuse cards altogether. Show me the gas a dime cheaper, I’ll pay cash.

Recently one of our fellow PF bloggers wrote about the other card benefits. Extended warranties among them.

7 Credit Card Chaser

“The question for me is am I willing to forgo that extra cash, but still pay for it? ”

Exactly. Unless you make this a moral issue which I do not believe it is then why in the world would anyone in Camp Rewards choose to make their financial situation worse off by changing to Camp Avoid (i.e. still keep paying higher costs/fees and not getting the accompanying rewards from using a rewards card)?

8 Stephanie PTY

I wouldn’t say I’m in Camp Rewards – the rewards are nice, and I certainly appreciate the “float” between when I make a purchase and when the bill comes due (in my present situation), but in the end, I am in Camp Establish a Credit History. I have two credit cards and that is the purpose I use them for. Because I recently had an insurance company pull my credit report to determine my rate, I’m glad that I’ve been working on my credit history over the past four years.

9 Credit Card Chaser

Very true, even if you through rewards totally out of the window just the fact (yes, its a fact) that using credit cards consistently and responsibly over time WILL increase your credit score and in turn save you tens of thousands of dollars in interest charges should one ever decide to get a mortgage, auto loan, etc. (not to mention insurance premiums as you alluded to). This fact alone makes it seem somewhat ridiculous to me to not want to have credit cards and in turn build credit history (unless of course you have a strong personal conviction against using a credit card for moral reasons which I respect but ultimately strong disagree with).

10 MoneyEnergy

I won’t be shredding my cards – but I don’t use them for rewards and all that junk, either. Mine are just super simple. In fact, I don’t even think they have any rewards junk attached to them at all. I have them for the places that cash can’t go. While I can’t say I’ve totally reached the point yet of paying in full each month, I am almost there – and have recently changed my attitude towards this debt (influenced in part by my feeling, along with you and Adam, that this debt must be slashed and killed forever!). It is slavery. But it’s slavery more to your own self, rather than Visa, when you do not have control over your own spending.

11 Credit Card Chaser

This was a well presented and well communicated post but I very much disagree with the basic premise.

You seem to make the case that the credit card companies do not provide anything of value to us – not only in the form of rewards but more importantly in the ease of transacting business.

I mean really, let’s be honest, as a small business owner and as a consumer I can certainly say that I am glad to be able to use a credit card to make purchases and I am glad that my customers can use credit cards to buy things from my company!

Sure, just like with any business the credit card companies charge a fee so that we (consumers and business owners) can have all of these benefits but it is almost insulting to hear people act as if the credit card companies should just sit back and conduct their business processing thousands of business transactions every minute, investing in the infrastructure to make the payment system reliable, etc. and do all of this for free.

I respect your opinion but let’s be honest – many of the things that you do online like paying for hosting for this blog, buying a WordPress theme for this blog, etc etc etc are all able to be done solely because of all of the credit card companies who have spent money to put the infrastructure in place to be able to make these purchases online with a credit card (not to mention that there would be very few of the Google AdSense ads showing up on your site if there was no framework in place to make purchases with something other than cash).

Just my two cents as it does very much bother me when people act as if the credit card companies do not do anything to deserve any of the transaction fees that they charge to merchants that in turn get passed on to the consumers.

I for one am grateful that there is a trustworthy and reliable system in place to buy and sell things online and other places without using cash.

Do some people on all sides (consumers, merchants, and credit card companies) abuse the system. Sure. However, that does not mean that we should make a judgment of “immorality” against every single consumer, merchant, and credit card company. 🙂

12 Miranda

While I certainly agree that credit card debt should be avoided, I’m with MoneyEnergy and Credit Card Chaser in acknowledging that there is a certain level of convenience attached to credit cards. I suppose that could be had with debit cards, but the transaction fees would still be there. It’s nice to think that cash is something to use all the time. But I’m not actually comfortable carrying around $1,500 to $2,000 in cash while shopping for a new TV. Plus, it’s damned inconvenient to carry that around. I’d much rather swipe my card (which has protections if it is stolen), and then transfer the cash from my checking account to the credit card account to pay it off. With a world that is increasingly mobile and flexible, cash just doesn’t always provide what is needed for all transactions.

13 Jeff Rose

Coming from parents that have been boggled down with credit card debt their whole lives, I started out in “Camp Avoid”. As I’ve grown and matured, and now a fairly successful business owner we started looking into the points program that credit cards offer. Mostly, because I had a friend who is also a business owner and he had been doing it for some time.

We ended up opening an Amazon card that gave us cash back. No fee to open it, we pay the balance off each month and we run EVERYTHING through it (except our mortgage because they charge a $75 monthly fee to use a card). After our first 90 days, we got a check for just under $450 just for using the card. That was pretty cool.

From an organizational standpoint, my wife is super anal when it comes to balancing the checkbook. I, on the other hand, am not. (They say opposites attract). By using the card for all our purchases, we just do an online transfer to the card twice a month and it’s swift and easy. She loves it and I love it because she’s not stressing any more trying to keep track of all my little purchases. I’m the guy that puts a $4 value meal on my debit card but now it’s the Amazon card 🙂

I understand the interchange fees, but as Patrick mentioned, this is the system and I’m just trying to take full advantage when I can.

14 David @ Money Under 30

Fantastic post, Matt. I fall somewhere in the middle of the rewards/avoid camps…I have two cards that I use occasionally for big purchases and travel, but I’m moving to cash more and more. I get rewards when I do use credit cards, but I’m not fooling myself that I’m actually getting something for nothing.

I’m actually working on a post for next week that will suggest for people who do want to keep a credit card or two (like me) rather than cancel them all, keep credit cards that DON’T have rewards. That way you’ll never swipe the card thinking “at least I get rewards”. I just don’t think that should ever be a consideration in someone’s decision:

1. Whether to buy something and
2. How to pay for it.

Anyway, thanks again for a killer post!

15 Jason @ Redeeming Riches

Matt, great post and good questions to raise. I am in camp rewards actaully and agree with Joe that until the industry changes, why should I pay for it and not get anything out of it?

From a biblical view – this is something I would say is a gray area and one that conscience should dictate. At this point, my conscience is perfectly fine with collecting rewards.

Essentially that’s because I never knew about all of this. So, the conscience could change after some thought and prayer regarding the issue.

I don’t think we can as Christians draw a line in the sand on the issue though.

16 Nvincibleliving

Awesome post on one of the many ‘hooks’ that credit card companies try to sink into us to keep us indebted! I’ve never understood why it’s been attractive to some people to max out a card/limit just to net a bogus ‘reward’ like a ‘free’ kitchen knive set, ect.

How is it ever a ‘reward’ to borrow money at super-inflated interest just to get something you could’ve bought with cash interest-free? lol

17 No Debt Plan

I don’t think you are talking about the same rewards. Most cards these days offer cash (or travel “points”) systems where if you spend $X each year you get a certain percentage back as cash.

This has nothing to do with maxing out credit cards to get some sort of reward. I am fairly certain there is nothing remotely close to what you describe available in the marketplace.



I’m not going to waste time telling you how well written and complete this is (oops….I just did!).

It brings up many points of consideration.

The post makes me liken the use of credit cards to that of buying pornography. It’s not a harmless act. It supports a very evil and dark industry….and maybe using my credit cards is doing something similar.

I have to think that through.

Certainly using credit cards adds a cost to doing business. However, without credit cards, one could argue that costs would also rise. (Demand would go down, so would production. And that would lead to higher manufacturing costs.)

I pay my cards off every month. And with all due respect, love and admiration, I don’t blame the companies for people getting in over their heads as I know you don’t either.

I believe that the highest cost we pay (as consumers) is the write-off’s the companies experience because of people not paying their debts.

I love using cards because it’s an easy way for me to track my spending. By tracking this easily, I reduce my spending easily.

It could be that this tracking more than makes up for the extra costs I incur.

Maybe MINT would solve this problem…..

Interested in your response as always.

19 Matt SF

Well argued point of view. I tend to think this issue comes down to an individuals ethics, or the morals/principles one has about their fellow man.

I think the most difficult thing about implementing a “most credit issuers are bad” policy is where do you draw the philosophical line when it comes to making money off the pro-consumption crowd?

Where does the line need to be drawn when you have everyone from insanely greedy credit card companies charging 75% interest, to a Lending Club loan recipient paying single digit interest they can’t find anywhere else. It’s a really good debate, and I wish I was smart enough to have the answer.

As you can probably guess, I’m in the rewards camp. Even though I don’t use them nearly as much as I used to ($5k in monthly business travel packs on the rewards points), I still use a cash back credit card and all gains are rolled into a cheap index fund, as well as a rewards checking debit card to get a higher than average savings rate.

I’m not entirely sure how the debit card works, but man, do I love that 4% savings rate compared to ING paying 1.5% (or whatever it was since I didn’t have my money there).

Awesome pic btw!

20 Robert Espe

It is worth pointing out that all currency systems (which is really what plastic is) have associated costs passed on to the consumer. Credit cards and debit cards both have fees (as you pointed out). Using paper checks includes the cost of checks and the costs of processing. Even cash requires the payment of taxes to manufacture it. And these are all naturally passed onto the consumer. So unless we return to a barter system there is no way to eliminate increased economic costs from some currency system. Granted some systems are more expensive than others, but then it is a question of cost vs. convenience, not cost versus no cost.

That being said, I thought this was an articulate and convincing post. However, while rewards aren’t a big deal to me (I only get about $75 a year cash back because I don’t spend much), I don’t like carrying cash. To quote an old TV show, “It’s so bulky”. I like the convenience and security (you cant’t beat plastic for loss/theft protection), and I need a credit rating not to borrow money but to help with my insurance premiums (which is actually the reason I got a credit card).

So here is what it would take for me to ditch my card:

(1) Discount for alternative payment method. It may be inconvenient for merchants, but if I am to forgo convenience AND cash, merchants will have to stand with me and deal with JUST the inconvenience (since they will actually save cash). If they won’t then they don’t really want change. I don’t even need the discount to equal a reward program, I just want to see effort from both sides of the economic engine, I’m not interested in a one sided battle against a system that doesn’t negatively impact me personally.

(2) Elimination of a system that allows credit ratings to affect anything other than loan rates (i.e, not have to pay higher auto premiums for not using credit cards). Maybe this could be built into that credit legislation everyone is talking about.

If those two things materialized, I would happily junk my card for all the reasons in this blog, I’ve only had it for two years anyways (I used a visa check card for the 9 years prior).

21 Steve Rhode


Well researched post and strong point of view. Spending just to get rewards has always been a fools game. A reward on a card is nothing more than an inducement to use the card, much like any other promotion is, even at your local store.

I get the argument about the hidden costs but those and many more costs exist in the underlying price that a consumer pays. If credit processing networks like Visa and MasterCard stopped charging these fees today it would probably not lower the cost of good sold. Most merchants would maintain pricing as it is to get that tiny bump.

As far as cards go, I avoid using a debit card and will instead use my credit card for almost all purchases. Hate them as much as you might, a credit card is the safest way to make a consumer transaction that gives you protection beyond the sale. Take for example the $4,500 of airlines tickets I had purchased and then the airline went bust. If I had paid cash or with the debit card I would be just another unsecured creditor in their bankruptcy but since I used my credit card my bank stepped right in and immediately credited me back. And by the way, all those unsecured creditors got a few cents on the dollar back.

I suppose over a few beers I could make the argument that it is immoral to leave yourself or your family unnecessarily exposed to financial disadvantage by not using the transaction instrument that provides the most protection. And if you used a card and were enrolled in you’d actually make money by being credited for buying things you already buy.

I almost hate to ask but do you happen to have the same opinions about guns? Are the manufactures immoral and should people stop owning them because harm may come from them?


22 No Debt Plan

Not just guns, how about home loans, student loans, convenience stores, and fast food? Car loans?

Guns don’t kill people. People kill people.

Home and student loans don’t bankrupt you. You sign up for too much debt and earn bankruptcy.

Convenience stores and fast food doesn’t make you obese. Choosing to go to the drive thru rather than going to the grocery store to make a meal is your choice.

I heard a segment on NPR the other day about a county in California that was banning new convenience stores. They interviewed people who lived in this poor area that said the only way they could get groceries was a convenience store — they didn’t have the transportation to go to a big grocery store, and the grocery store didn’t have the economic incentive to open a store in a poor area. (There isn’t profit in doing that.)

No one forced you to have a $400 car payment. You signed up for it because you wanted those shiny new wheels.

It is all about choice and incentives in my eyes.

23 JoeTaxpayer

“The post makes me liken the use of credit cards to that of buying pornography. It’s not a harmless act. It supports a very evil and dark industry….”

I understand this to be hypothetical, something to ponder. I can avoid porn by not buying it. But tough to avoid Barnes and Noble and Borders as sellers. Tough to avoid every gas station with Playboy on the rack.

What good is served by me not using the credit cards and getting my reward points? Can I avoid every bank that issues cards. I believe they nearly all do. Isn’t it odd to say the devil owns that bar, don’t buy beer there, but you can give him your money for a Coke?

I’m still having a tough time seeing this as a moral issue. I am happy with my level of cash donations to charity. Yet I write no checks, as every one of them takes plastic. Easy tracking for me, and they get to serve their cause. I appreciate these discussions, but there are bigger thing to be concerned with to serve the higher power. Feed and educate the poor, save the environment, etc.

24 Lakita


This is very thorough! I guess I’m somewhere in the middle with a stronger lean towards camp avoid. I don’t use the my cc enough to see any significant rewards so it has always been a matter of convenience for me.

I didn’t know the fee was so heavy on Debit vs Credit card transactions…I recently switched to Debit only on my card and I will keep doing that, putting me one step closer towards camp Avoid.


25 Ethan

It is an undesirable system, but it doesn’t make me morally culpable for the actions of other individuals.

On the other hand, I would love to replace the current CC/Debit framework with a new, low-cost debit framework. But merchants have the power to unite and either bargain for lower rates or replace the Visa/MC option wholesale. Consumers, much less so. If they won’t help themselves I’m not going to go out of my way to.

Imagine if all major department stores, grocery stores, and online retailers banded together and demanded significantly lower, perpetual rates. Or if they didn’t even give Visa/MC the option, but simply replaced them with a new finance company with a different charter and slowly stopped taking Visa/MC credit cards. Think of the bargaining power they would have with banks to bring them onboard. Think of the advertising dollars they command. A merchant’s union, if you will.

26 Matt Jabs

Excellent points Ethan – I wonder if any merchants have begun to look into this option.

You also pointed out that you are not morally culpable for the actions of others. This is also very true. Each of us only need be culpable for our own actions.

27 No Debt Plan

Mr. Camp Rewards here.

1. Credit card costs are a cost of doing business. As mentioned in the post debit cards cost something as well, and the difference isn’t that significant. The idea that credit cards are a significant contribution to a rise in prices is highly doubtful. If every merchant on the planet stopped using credit cards and forced everyone to use cash they would keep prices the same and capture that 2-3% cost of credit.

2. As others have mentioned, responsible credit use (paying off your CC every month) will raise your FICO score and lower your cost of other debt (home mortgage, anyone)? Yes, Dave Ramsey says you can buy a home with cash… but really how many people do that? 99% of Americans will have debt at some point in their life because of a home purchase. Lowering your cost of credit at that point by using it responsibly today is a smart decision.

3. You do realize that increasing minimum payments will help people pay off their debts faster, right? Okay so what if they go up so much that they can’t pay? Sounds like you took on too much debt.

“But it is unethical for them to change the terms!” — hmm, you signed a contract that said they could change the terms and essentially call in the debt at any point. Which leads to my next point…

4. You hit on, but really skipped over, personal responsibility. 100% of people who never fill out a credit card application have $0 in credit debt. Period! This is undeniable (outside of identify theft!). American society as a whole is now based on passing the blame and pointing the finger (whether it be home foreclosures or credit cards or anything else).

5. Economics is based on incentives. Until someone is willing to pay me $400 per year for my regular spending, that is… changing the system and my incentive, I have no incentive as a consumer to stop using credit cards.

For the same reason the credit card companies have no incentive to turn DOWN lending money to people who want to borrow money. That would be like if I came to you and offered you a 30% return on a statistically solid investment. As an investor it makes sense for you to take the risk because of the potential return.

And what about those with credit card debt? Their incentive was being able to have stuff and experiences TODAY at a future cost tomorrow. Is that a smart decision? Probably not, but it is their choice to value today over tomorrow… which ties into personal responsibility.

That having been said I am all for people getting out of credit card debt. If you choose to take your dollars elsewhere, that’s awesome. That’s what our economic freedom allows us to do. But don’t burn people at the stake for being smart enough to profit from their every day spending.

My two dollars! 🙂

28 No Debt Plan

You also need to consider the cost of using a cash only system. Employee theft can be significant — and impossible if a credit card is swiped. Another commenter mentioned that every payment method has associated costs that we all share (consumers, businesses, taxpayers, etc.).

Cash can be stolen, credit can’t (in the end).

29 Matt Jabs

Thanks Kevin. You did a great job of bringing back to light all the reasons I always see for using credit.

This post was written to show that there are reasons other than those that can and should factor into the decision to use credit… especially concerning rewards.


30 BG

Great article. Question about debit/credit purchases. I always use my debit card, and the merchant normally asks “Debit or Credit”? — I tell them it is their choice and 99% of the time, they run the card through as Credit.

If it were cheaper for the merchants to pick debit, I’d expect that they would…

31 Matt Jabs

It’s either because it’s a cashier that doesn’t care, or a merchant isn’t aware. Debit is much cheaper for merchants.

32 Steve in W MA

@ BG, ” I always use my debit card, and the merchant normally asks “Debit or Credit”? — I tell them it is their choice and 99% of the time, they run the card through as Credit.

If it were cheaper for the merchants to pick debit, I’d expect that they would…”

I would suspect that these places haven’t trained their staff correctly. If they are electing for credit as opposed to debit, they are leaving somewhere between 0.5% and 1.25% worth of cash on the table.

33 @KIntheHouse


A well thought out article covering both camps. I used to be strongly in Camp Reward too. But, it is so easy to build up debt even if you promise yourself to pay off every month. I have resorted to sticking with debit and it helps me not to bite more than I can chew. Yes, I missing out on a few dollars I could be earning but it gives me much more emotional freedom in not stressing about making sure to pay that card off at the end of the month.

Another vote for Camp Avoid here.



100% in reward camp:

-If your car can drive up to 120 mph, do you have to do it? The answer is no.

-If your freezer is full of food, do you have to eat it all the very same day? the answer is no.

– If you have a credit card in your wallet, do you have to use it to the max and not pay it back at the end of the month? the answer is… No.

I have been using my credit card for every single expense of my daily life for the past 6 years and never paid a penny in interest. However, I have:
– got a ton of rewards (airplane tickets, movie and zoo tickets, paint, etc.)
– I have built a strong credit history that made me save money with a preferential rate on my mortgage and lower insurance premium based on the same principle. The easiest way to build a strong credit score is to use your card responsibly.
– I get free additional insurance on all my purchases.

The 2% fee is a cost that you are actually sponsoring on each purchase, regardless if you use your credit card or not. It is not a business cost for any companies and we all pay the same price at the cashier. Therefore, thank you for supporting the credit infrastructure this is allowing me rewards.

While I don’t agree with you, this is a very well written post with strong arguments. Well done!

35 Matt Jabs

You have given good info about the “proper use of credit.” This post was written to show that there are reasons not to use credit at all.

36 Four Pillars

I’m in “Camp Convenience” – that’s the main reason I use credit cards. And if I’m using them I might as well get any rewards available.

Great post!

37 Matt Jabs

I understand the convenience thing. For us to inconvenience ourselves it would to have to be something we feel strongly about.

38 Melissa Bunton


This is an honest question so I hope I don’t type it in a sarcastic way 🙂

If we should use cash or debit cards to take a stand on the issue of merchants charging high interchange fees to provide rewards to customers . . . should we also keep all our money in our mattress at home to take a stand on the issue of banks charging higher interest rates on loans to provide interest to the deposits they are holding?

It might be a bad analogy – feel free to challenge it!

39 Matt Jabs

Thanks for the question Melissa, I understand what you mean.

I suppose I would answer by pointing out that interest rates on loans are near all-time lows making the question moot. However… according to Austrian Free Market Economics… banks should be raising interest rates at times like these in an effort to “cut away the fat”; but they’re not.

Rather than creating artificially easy conditions by keeping rates low, the Fed should have raised rates in an effort to let bad loans fail, and let the free market correct itself properly.

Consider what Lionel Robbins wrote about the lesser know depression of 1920-21 in relation to the how the Fed banks wrongfully handled rates during the Great Depression of the 1930’s:

“Now in the pre-war business depression a very clear policy had been developed to deal with this situation. The maxim adopted by central banks for dealing with financial crises was to discount freely on good security, but to keep the rate of discount high. Similarly in dealing with the wider dislocations of commodity prices and production no attempt should be made to bring about artificially easy conditions. The results of this were simple. Firms whose position was fundamentally sound obtained what relief was necessary. Having confidence in the future, they were prepared to foot the bill. But the firms whose position was fundamentally unsound realized that the game was up and went into liquidation. After a short period of distress the stage was once more set for business recovery.”

40 H Lee D

In theory, I am in Camp Avoid, though in practice, I’m not.

We get rewards, but not enough to convince me to use CCs.

I’m not comfortable carrying cash, especially when I’m going to make a large purchase. I’m not comfortable using my debit card (and have done so exactly once) because it gives potential thieves too much access to my bank account.

I also can’t use cash to book a flight, or to make other online purchases. I’m a fan of buying online whenever possible — I can usually get a better deal, and I don’t have to leave my house.

The point above about security in some instances was a good one, as well.

If there was a safe option (like CCs) that existed, I’d use it.

41 Sarah

I was the loudest voice in the “Camp Avoid Choir” until, one day a Chase Bank creature annoyed me, and I wanted to annoy him right back.

He asked if I would like to apply for for their “Chase Freedom” card, with all kinds of spiffy promotions. I have an absolutely HORRIBLE credit history, and could not possibly qualify, so I said, “yes,” just to make him waste time.

I was approved. That, alone, proves the EVILNESS of banks.

I staggered out of the bank in shock, not fully understanding what had happened…. When I got home, I realized that in all the years I have avoided (been denied) credit, that I had changed: Years of living (barely) paycheck to paycheck have been replaced with a solid budget and steady saving and investing.

I have to buy food, I have to pay bills, so instead of using the credit card to buy toys to pay off, I strictly use it for regular purchases that I would have made anyway. I still buy the toys on the card, but not until I have saved enough to pay for it in cash. I have paid $0 in interest and fees on the card.

Last week, I submitted my request for my $250 cash-back check. This will be my second of the year, and let me tell you: Snatching that tasty tasty cheese from the bank’s trap feels so so GOOD!

But in my bad days, Chase would have eaten me alive. The bank is the predator, and we are its food. My personal belief is that the “Great Recession” was caused SOLELY by 8 years of the erosion of consumer protection, and especially that change in the bankruptcy law that was written by the finance industry and rubber-stamped by the 2005 Republican controlled congress.

Scientific American inadvertently documented the relationship between business and consumers in this article of Moose and Wolves:

Banks ate too many consumers, and faced starvation. The government should never have stepped in.

To emphasize the EVIL of banks and credit cards, I received another promotion from Chase in the mail. Checks that I can draw against my credit card account for 0% interest, until July 2010. How thoughtful of them!

The fine print states there is a 3% finance fee up front, and that Chase reserves the right to apply payments to my account at their sole discretion, which means the 0% check gets paid before the high-interest charges, leaving me in a world of hurt if this trap snaps on me.

For the religious out there, remember there is a reason that money lenders were held in such low regard. Darwinists, like me, never forget that the bank is the wolf, and YOU ARE THE MOOSE.

42 JoeTaxpayer

If you have interest, read the book “The Housing Boom and Bust” by Thomas Sowell. The government was part of the issue, pushing banks to make loans when/where they shouldn’t have.
To be fair, there was enough blame to go around, the banks didn’t push back, they simply through out the rules that worked for decades, more or less. The consumers took loans without understanding what they were getting into.

43 Sarah

Everyone agrees with you, and I don’t know much about economics, beyond balancing my check book.

It seems to me, that if Americans could pay their bills, the recession would not have happened. Period.

The “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,” passed into law as Public Law 109-8: See

While, in an abstract way, freeloaders SHOULD be stopped from leaching on our system, this law disregarded a 2001 study of the American Journal of Medicine that showed that in the 5 states that participated, medical problems contributed to at least 46.2% of all bankruptcies.

This number grew even worse in the six following years: “Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income.”

Both of these statistics are from the American Journal of Medicine web site,

In short, the bankruptcies I cited above were not caused by irresponsible credit abusers, for these people, the choice was either Bankruptcy or Die. The premise of this new law was flawed from the very beginning.

What this law actually tried to accomplish, was lowering the amount of risk for a given loan, because most borrowers couldn’t escape. They would become the equivalent of 21st century share croppers, working for the banks to be allowed to live on a piece of land.

In my humble opinion, THIS is the point where the sub-prime lending increased exponentially.

This is the point, where the moose lost their natural protection, and the wolves gorged themselves on the less fit until their food supply could no longer maintain them. By either natural selection, or Adam Smith’s laissez faire ideals that the GOP has espoused for years, the banks that were in trouble should have been allowed to fail. Whatever system emerged to fill their niche would have been stronger and been a more responsible part of our common economy.

I suspect that you, and every other reader of this blog, is one of the financially fit who are coming through this economic mess with nothing worse than a few scars on your portfolio, and I salute you all.

I don’t want to start an argument with you, or anyone else. My goal in this comment is simply to explain my opinion. Every single expert on the subject agrees with you, and would consider me daft. However, I honestly expect that the text books our children will read when they grow up and go to college (the ones who can afford it) will support, to some extent, my point of view.

As to “predatory lenders,” reread my observation above about those “0% interest” checks against my Visa account that Chase bank was nice enough to send me LAST WEEK. Their choice in applying my payments to the 0% portion of my statement, while allowing high interest to accumulate on any other charges to grow, combined with the “finance fee” on top of this, makes their offer very very close to being a flat-out lie.

The banks are still predators, and we are still their food, and without government protections, our next “Great Recession” is already beginning to form.

44 Matt Jabs

Very well put Sarah… I’m not sure I disagree with a whole lot of what you said, and would actually like to expand on one point.

GOP was mentioned – I would like to say a few things about that.

I am affiliated with neither party and am aware that the entire Republican/Democrat “two-party” debate is utter hogwash. It is nothing more than a distraction to keep the American people occupied while the important issues continue to occur seamlessly, regardless of party, and with no media coverage.

To prove the point… Dems have not reversed any of the financial industry changes the Rep party made while Bush was in power. Quite the contrary, they have expanded upon the mistakes.

I am neither Republican or Democrat. I am American, and both parties are full of stink and their corruption is as rottenness in the bones of our “Republic.”

Thank you for your great and thoughtful comments.

45 Matt SF

Well said Matt Jabs! Republicans and Democrats are nothing but a white collar version of the Bloods and Crips.

46 Erik

Most people don’t even redeem their credit card rewards. There’s a reason credit card companies offer them. It causes people to use their credit cards more, and they don’t spend much money to give out the rewards. They only help the credit card companies, not the consumer.

47 Jen

I am definitely in the avoid category. In the travel industry, when we take a credit card it is processed by the travel provider. About 25% of my extended business is other travel related products. I use payal for the infrequent credit card purchase because of the increase in fees. The banks prey on anyone, businesses are not exempt.

When I signed up for the card machine, it was free registration/credit check. The monthy fee was $25 and they took 2.5% of the total sales price under $1,000. Over a three yer period they added an annual $120 fee, plus a monthly fee of $60, plus the swipe rental for a another $40 a month and they started taking 5% off the total sale. In addition, if I wanted a paper statment rather than an e-statement – they charged a $15 courtesy fee.

From a personal standpoint, I have had an ongoing dispute with unauthorized insurance premiums added to a charge account. The bank mouthed off, so I paid in full and closed the account. Long story short here, the bank allowed additional unauthorized charges to be added to a closed/paid in full account then hit with predatory fees. Elizabeth Warren would have a field day with my paperwork on this because to date over 33 months, the bank has violated TILA for a total of 234 counts.

The banks count on people either not having the knowledge to fight them, or the time.

48 Matt Jabs

Incredible Story Jen, thank you very much for sharing your experience.

I only wish these types of stories received the same type of exposure as the credit card commercials do!

49 Matt Jabs

Great point Jeff… especially for students, the cards can be such a tempting tool of instant gratification that end up leaving a REALLY bad taste in your mouth – as you have found.

I’m glad you recognized it early and are turning things back around. Nice work.

50 John

I am one of the lucky few people that has a rewards card with no annual fees whatsoever. I also don’t carry a balance from month to month, so I don’t pay any interest.

My bank, USAA, actually requires me to have a credit card for a very understandable reason. It’s branchless banking. I don’t take my checks to the bank to make a deposit. I simply scan them in on my home computer, or use my iPhone to deposit them. As you can tell, there is a high risk of fraud here since the money is available immediately. I’m definitely okay with having this card (which is my only card) for the convenience of scanning my own checks and having the money available with no wait. The credit card gives them the opportunity to charge your card if you deposit a bad check and spend the money right away.

The rewards program is amazing. My wife and I will be able to travel nearly anywhere in the world by our 5th anniversary because of our rewards points.

Unless I can find millions upon millions of people that are willing to join me in overthrowing the credit industry, I will continue to use credit cards responsibly. Like prescription drugs, only people that abuse it will be negatively affected by it on a personal level. On a global level, I alone can make no difference.

My rewards program is truly free money, since I am subject to the increase in product cost whether I use credit or not.

51 Matt Jabs

“On a global level, I alone can make no difference.”

It’s too bad that so many people think this way.

52 John

@Matt Jabs – Typically I am an optimistic person. When it comes to solving many social justice and human rights issues, I know I can in fact make a difference.

It’s when it comes to business that, in reality, my position will likely not have an effect. I tend to look at this as a realistic point of view, rather than pessimistic or apathetic. It’s a problem with greedy, irresponsible, and uninformed people that creates a credit mess. For as long as we’ve been on this earth, these three types of people have been with us. Unfortunately, they make the world a harder place for many of us to live in. But I can’t change their hearts. They will do as they please.

53 Matt Jabs

Thanks John: I understand the logic, I just hold a philosophy that approaches the issue from a different perspective.

To elaborate:

All any of us can do is change everything we dispise at ground zero… ourselves. If all of us do this it effects global change. More importantly it effects change in our country, state, community, church, and family.

54 Kevin@OutOfYourRut

Matt, I completely agree with your take on the rewards programs. People forget that the whole purpose of rewards programs is to get you to spend more money (in order to increase the reward). No program can save you money if it’s aim is to make you spend more than you normally would–which is the basic purpose of credit cards in the first place.

After the great credit boom of the past 2-3 decades, people have been twisted into believing that credit cards are some sort of money management tool for the customers benefit. Nothing could be further from the truth. They’re to facilitate our buying things (that we often can’t afford) and so that the banks can collect fees on both sides of the transaction for extending us the priviledge.

This post looks like it was exhaustive to write but it’s right on the money. Well done!

55 JoeTaxpayer

Kevin (or any other anti-card ppl)-
May I ask this? Do you all feel that no one can benefit from using a credit card, or simply that for most people the risk is greater than the reward?
Since I’ve not paid any interest on my cards, and never a late fee, my only ‘cost’ is the potential to spend more, right? Now, ironically, there are articles floating around that as many as 10% of people ‘save too much.’ If my savings is in order, 20%+ is high enough to have too much at retirement, then it would seem I have no desire to spend even less. Why would I attribute motive in the case of this business relationship? They get their cut from the merchant, I get whatever reward that card gives me. You can say they are betting I’ll screw up. 25 years of not paying interest tells me otherwise.

56 H Lee D

I don’t think the point was either that no one can feel like they benefit, or the risk/reward ratio. Credit card companies charge huge fees to merchants in order for those merchants to be able to accept your card. Those fees, in turn, cause the prices of everything to be higher – so merchants can still make profits – and so even with a rewards card that you pay in full, you are gaining less in rewards than you would save in the cost of your merchandise if the costs weren’t raised to cover the credit card companies’ fees.

57 Kevin@OutOfYourRut

Joe–I see your point. But my comments are directed at the more typical person.

You might benefit from using credit cards because you really don’t need them, but that isn’t the average person. Many people have become credit card junkies because that’s essentially what the card issuers are going for. Buy now, pay later. Easy monthly payments. Periodic increased credit limits. Skip a payment. Zero interest for six months on balance transfers. OK, so the last three are practically history now, but I think you get my point.

The idea of paying by credit card-for what ever purpose-is a contradiction in terms if the point is to gain greater control over your finances. The credit card system is set up to facilitate sales and earn money for the lenders, not as a money management tool for the borrower.

If you pay by cash, check or debit card, there’s far less chance of a debt overhang than there is with credit cards.

58 CatZ

Merchants aren’t allowed by law to charge more for you to use your credit card. Marking up items makes the small business even less competitive. There is little room to offer a discount on an already extremely small profit that’s barely enough to sustain the business ??? The fees add up to a lot more than 2%. The mark up on items isn’t nearly as high at it used to be because of internet high volume sales. In my business, my markup can be as small as 20% and sometimes much less than that. The percent that I am charged when someone uses a card in my store is 3% OF THE ENTIRE SALE INCLUDING THE TAX, NOT INCLUDING THE SWIPE FEE. A rewards card takes 5% of the total sale. If I only make a $2 profit on a 10.00 item, and most of my sales are that small, they take 21 cents to swipe, 50 cents of the sale including the tax = 71cents. Doesn’t sound like much does it??? But that is nearly 40% of my slim profit, and that doesn’t include monthly billing fees. If I lose that much profit from most every sale I make……I’m out of business. That’s how the big banks with all the money are killing the small business.

59 Matt Jabs

Yep, that’s why we use cash whenever possible Catz. God bless.

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