Credit Cards

Do the advantages of credit cards make you lose money?

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Statement credits can be great perks, if you already make those purchases.

Key points

  • Spending money you wouldn’t otherwise spend just to get a statement credit leads to wasted money.
  • If you don’t already spend in those categories or with those brands, don’t count the credits as part of the calculation of your effective annual fee.

When you have a rewards credit card with no annual fee, or even a mid-range fee, rewards are the star. These cards are often selected based on how well they maximize your rewards for each purchase.

However, once you get into the higher tier cards, the rewards actually take a backseat. Instead, these luxury cards are all about perks. In particular, many cards with high annual fees offer statement credits to help offset that large annual fee.

If you’re already using the services these statement credits apply to, they can turn an expensive card into a break-even point, or even a source of income. But some of these credits might actually encourage you to waste money on purchases you wouldn’t otherwise make, just to earn statement credits.

The more specific the credit, the more likely it is to be wasted

For the most part, the more versatile a statement credit is, the more likely you are to use it naturally in the course of your regular spending. For example, a general travel credit that you can spend on anything from hotels to subway fares should be easy for most travel rewards cardholders to use.

But increasingly, these credits are for specific companies or brands. If you don’t already shop with these brands, striving to use credits can often result in spending money on things you don’t normally use.

An example of this is the Uber credits offered by some American Express cards. If you already use Uber or UberEats regularly, then these credits are a no-brainer. But what if you don’t?

Every time you spend $40 or more on a food delivery order just so you can use your $10 Uber credit, you’ve now spent $30 that you probably wouldn’t have spent if it weren’t for that credit. So, are you really getting ahead in that case?

FOMO Credit Statement

The big problem with statement credits is that they tend to instill a certain sense of FOMO (fear of missing out). Many of us just can’t bear the thought of missing out on what sounds a lot like “free” money.

This can be made worse if we’ve already calculated statement credits into the card’s value proposition. For example, if a card has an annual fee of $550 and statement credits of $300, the effective annual fee for that card is $250. If a card also has decent rewards on top of those credits, then that effective $250 fee might seem pretty reasonable.

But statement credits are only one viable part of the equation if you actually use them. And this can lead to excessive or wasteful spending if you approach an expiration date with unused credits. That FOMO pressure could lead you to use them before you lose them, no matter what you end up spending them on.

Your purchase history tells the real story

The best solution I can offer to this problem is to do a little more self-reflection before relying on statement credits to add value to an expensive credit card. Take a look at your purchase history on existing cards over the past year to get a realistic idea of ​​what you’re actually spending your money on.

Don’t regularly do monthly Uber transactions? It probably won’t start just because you got a new credit card. Never shop with a specific retailer or use a particular service? There is probably a reason for that.

The bottom line is, if you haven’t already made these purchases, don’t include statement credits as part of your actual annual fee calculations. Instead, think of them as nice bonuses in case you use them in your normal course of spending.

Also, if the card’s other benefits and rewards aren’t worth the annual fee without those specific credits, don’t get the card. You’ll end up wasting money to justify your fee, which really defeats the purpose.

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