Remember that the credit card companies wouldn’t offer points if they weren’t profitable. People tend to spend more on a credit card than they do with cash, and it’s not enough to make up with points.
I’m generally a pretty responsible credit user. I pay the whole bill each month and never paid a dime in interest. But I’d be lying if I said I never justified a slightly larger purchase that I would have otherwise made by calculating the “discount” from the points. Doing this just one time on a modestly large purchase can effectively negate all the points you might earn in a given year.
I found even moving to a debit card helped in two ways. One, the point game goes away. But I think more importantly, when spending on a debit card you see the balance go down, so there is an instant and clear impact of the expense. With a credit card the number goes up, and you have to invert it and do the math in your head to feel the expense in the moment, which most people don’t do. And when people look at their bank balance at it hasn’t moved, they think they still have that money to spend. It’s subtle, you might not realize it, but those are the games they play. I’ve probably saved more money from simply spending less, than I would make in points.
I do keep one credit card around that I use for my recurring online payments. These are set it and forget it, so the psychology plays less of a role, as far as I can tell. And I review all the stuff on that recurring list on a regular basis to keep it lean. I have to spend $5k to make $100 in points. Who cares? It’s a lot easier to trim $200 or even $500 out of $5k in terms of spending, if I’m really looking to maximize my savings. Not to mention, the points aren’t cash in your pocket, they are an excuse to spend even more.
Let’s say I have points to get a free flight. Great, now I’m also spending money out of pocket on a hotel, meals, entertainment, etc. That “free” $600 plane ticket actually costs $5k in other expenses, but it’s ok, because we’re earning $100 more in points for spending that $5k.
It’s a trap. It’s subtle, it might feel like a win, but they’re coming at you from several different angles. It’s not just about the people paying interest on their balance. They make about as much on the interchange fees from high volume users as they do from those interest payments. Those points are also a trick to get you to swipe more to boost their interchange fee profits.