“I get 1.5% cash back. On everything. EVERYTHING,” a friend exclaimed. He was telling me how great he’s doing financially through the use of a rewards credit card. He and his wife just completed a major home renovation to the tune of $30,000. He acted as the General Contractor and hired the different trades to sub out the work. Roofing, drywall, painting, flooring, and so forth. He said he got as many of them as possible to take his credit card for payment so he could get the cash back.
Now, I’m not going to tell you that he carries credit card debt and isn’t well off. No debt, and they are somewhat wealthy and retired. They paid all balances due immediately after posting. He is the definition of a “responsible credit card user”. But there are two things at play here. One, he’s shouting from the rooftops and teaching his adult kids to use credit. He thinks he is getting one over on the system, and he loves that. He thrives on that. The banks aren’t stupid. They know this. They also know for every one of him, there will be two of his kids and one friend who does carry credit card debt. All while thinking they’re smart for getting cash back. (And at least one of his kids carries lots of debt. Thanks, dad)
I asked him, that $30,000 charged must have been like getting a year’s worth of cashback at once. He said no, more like 2.5 – 3 years’ worth based on his spending habits. Wow! That’s a lot of do-re-mi!
It’s $450. That’s how much 1.5% of $30,000 is.
Here’s the other thing, the one that when I told him made his head spin…he could have gotten a better cash deal. The subcontractor has to pay the credit card company a processing fee of 3% or more to take credit card payment. If he would have pulled out cold, hard cash – real money – and said, listen I know you take credit cards but can I pay you in cash and get a 2% discount? (Or heck, ask for 5%, can’t hurt) He would have gotten a better deal, no credit card needed.
What’s in my wallet? Cash, thank you very much.