Money Advice the Expert Don't Agree On: Using Credit Card Rewards

Credit card rewards programs have become hugely popular. And many of us use them without a hitch. But some say the credit cards rewards game can be dangerous—after all, the average American has over $15,000 worth of consumer debt. Some experts advise staying away from cards completely. But others have bucked this advice in favor of a big perks.

At Two Cents, we cover a lot of posts that include some pretty standard personal finance advice. However basic this advice may be, not everyone agrees with it. And that's okay, because sometimes, traditional advice is worth questioning. In our "Money Advice Not Everyone Agrees On" series, we dig a little deeper into these seemingly basic topics and look at different perspectives on the matter.

The Basics of Using Credit Card Rewards

For those who aren't familiar with the credit card rewards game, it involves signing up for cards that offer great incentive programs. These programs give you points for simply using or signing up for a card, and those points can be redeemed for travel, gift cards, cash or other rewards.

Many rewards enthusiasts use these cards for paying their everyday expenses—from bills to groceries. And this makes some credit experts cringe. But, if you can play the game responsibly, enthusiasts say you can reap huge rewards while avoiding the consequences.

If it sounds kind of like playing with fire, that's because it can be. For that reason, some experts recommend staying away from credit card rewards completely.

"Chasing Rewards" Can Hurt Your Credit Score

Every time you open a card, your credit score gets dinged a few points, explains Tony Mecia, in a post for He explains that credit bureaus also calculate your score based on how much credit you have available. So your score could be hurt if you immediately close a card after reaping the benefits. This could leave you with less available credit and therefore lower your score.

Mecia says the better approach, if you're going to use a rewards card, is to leave the card open and simply not use it after you've earned whatever sign-up bonus it offers. If the card has a fee, wait until the fee is due to cancel it, or try asking the company to downgrade you to a no-fee card.

How "Rewards Chasers" Keep Their Credit Score in Shape

Holly Johnson, founder of financial blog Club Thrifty, has earned and used thousands of dollars in credit card rewards. She acknowledges the credit utilization issue, telling us:

A large percentage of your credit score is based on credit utilization and you should be golden in that category if you are paying your cards in full several times per month and never paying interest…Use common sense when applying for new cards or cancelling old ones. Further, monitor your credit on a site like Credit Karma. They'll track it all for you for free and let you know when your credit report takes a hard inquiry or your score dips.

A couple of other tips she recommends:

  • Spread out your inquiries by getting your spouse to apply for a few cards.
  • Don't close cards that don't have an annual fee.

Brad Barrett of Richmond Savers not only uses credit card rewards, he also coaches other people on how to get the most out of them. We asked him about how to protect your credit if you use rewards. He told us:

It always comes back to paying your card in full and on time every single month. As long as you do that, you will inevitably build up an excellent credit rating and you can then look to open credit cards for these specific bonuses.

"Chasing Rewards" Can Lead to Bad Spending Habits

Others point out another problem: many people don't pay off their cards each month. Mandi Woodruff of Business Insider writes:

You could say consumers are simply feeling more secure about their ability to handle credit card bills these days. But...we could be getting in over our heads again. More than half of credit users say they continuously carry a balance on their accounts and 54% of consumers say they use credit for rewards, up a full 9 points from 2008. Credit lenders are incentivizing overspending and consumers are clearly taking the bait.

In an interview with Business Insider, credit expert John Ulzheimer explains his view on these programs:

"I call this chasing rewards, where you buy things or open cards you wouldn't normally to get the points," Ulzheimer says, noting that he uses his cards only to spend money he would anyway. "It's incredibly dangerous. Most people who find themselves in terrible credit card debt attribute it to using cards this way.

How "Reward Chasers" Keep Spending in Check

"When used responsibly, credit cards can be an extremely valuable financial tool and a source of free income either through cash back or travel rewards points," Barrett says. "The essential point here is when used responsibly."

Barrett says this means paying your bill on time and in full each month, and not overspending.

Johnson lays out her own simple rules for using credit card rewards:

  • You shouldn't use rewards as an excuse or reason to spend more.
  • You should know your budget and have a good habit of sticking to it.
  • You should pay your card in full every month (or even more frequently).
  • You should never pay interest on your purchases.

"If you can't do any of these things, or you're afraid you won't be able to, then please avoid this hobby," Johnson says.

Most rewards enthusiasts will admit: it's not a technique for everyone. If you have a problem with overspending, you probably will overspend with a card. If you're an impulsive spender, and your habits have gotten you into trouble before, it's probably best to avoid credit cards altogether.

J.Money, founder of Rock Star Finance agrees:

If you don't trust yourself around plastic, stay away! It doesn't matter how many free miles or cash back you get, in the end you'll get caught up in a game that's heavily skewed to your demise.

The Benefit of Chasing Rewards

The credit card rewards game, obviously, has its hazards. But those who can avoid the hazards seem to benefit in a big way. Johnson tells us just how much it's paid off for her:

I've easily earned $20,000 in credit card rewards in the past two years. I recently booked a $6,200 European vacation for less than $200 in taxes and fees, for example...This year we've gone to Jamaica and Las Vegas already, mostly on credit card rewards. Later this year I'm using points to go to New Orleans, Mexico, London, Paris, and Denver, CO for a Pearl Jam concert. I honestly have no idea what all that travel is worth because I rarely pay for it.

Barrett says that many cards have huge sign-up bonuses. He's been able to accumulate almost a million points just by taking advantage of these bonuses.

Read the Fine Print

If you do decide to use rewards, there are a couple of other things to look out for, Mecia writes.

  • If you cancel your card before using your points, you could lose the points. This isn't true with airline and hotel cards, Mecia says, but it does apply to banks that have their own programs.
  • And if you open a card just to get the sign-up bonus, and then you immediately cancel, the company might not approve you for future cards. Your behavior might make you an "undesirable customer." Basically, you could get blacklisted.

"People will always have a love and hate relationship with credit cards," J. Money says. "Those in debt and generally bad with money will hate them, and rightfully so. Those working the system will do anything to max out the rewards and take advantage of the card companies instead."

Yes, it's possible to earn rewards without consequence, but it takes some credit knowledge and a lot of responsibility. Many of us benefit hugely from rewards programs. And for that reason, it's hard not to praise them. But we can pretty much all agree that playing the rewards game isn't without risk. The question is—can you avoid that risk completely? If so, you might be able to buck the traditional credit card advice and play the game without worry.
