Should We Switch to Cashback Credit Cards? Response

In a previous post I compared 3 cashback credit cards because we were considering getting a cashback card as our current credit cards do not have this feature. I particularly had my eye on the Tangerine Money-back credit card. What attracted me to this credit card was (this is not an endorsement):

  • 2% cash back on 2 categories of your choice and 1% on all others. They currently have a promotional going on right now where they are offering 4% cashback for the 2 categories for the first 90 days.
  • You can change your 2 categories each month so you can maximize your cashback. The categories include: grocery, restaurants, gas, drug store, furniture, entertainment, hotel/motel, recurring bill payments, home improvements, public transportation and parking.
  • There is no limit to the amount of cashback you can earn each month.
  • You can setup your cashback money to be deposited back into the credit card or into a Tangerine savings account. If you choose the savings account option, they give you a 3rd category to choose for which you can earn 2% cashback on purchases.
  • The credit card includes purchase insurance and extended warranty for certain products. Not sure how this one works.

After some careful consideration and back and forth with my husband, we decided against switching credit cards or even getting another credit card.

Why? Glad you asked. Here are a few reasons:

  1. Cost of borrowing. Even though we try not to carry a credit card balance each month, the truth is we are human and we are at the early stages of financial independence. We have significantly improved our spending habits but have a lot more work to do. Our current credit cards do not have cashback, but they offer us a low interest rate of 4.20%. If we can’t pay off the credit card balance in full one month, we know that our interest expense will be low.
  2. Too much credit. I mentioned in part 1 of this post that I actually wouldn’t mind the credit score hit when cancelling one credit card and replacing it with a another. However, I did not consider that my husband would not be too excited about that idea. He did not mind us getting another card, but didn’t want to cancel any as it would take a hit on our credit score. That would mean having access to more credit, which kind of scares me to be honest. Even though we always keep our credit utilization extremely low and our credit score is very good, having access to that much credit can lead us to financial trouble in the future. I want to make sure that I am learning from my past experience and not making the same mistakes in the future.
  3. We would need to change our method of payment. This is probably the biggest reason why I am apprehensive on making the switch. My husband and I try and live within our means and not spend beyond our income. In making purchases, paying bills and taking care of daily expenses I would say we probably have 85% of our transaction amount as cash or debit transactions while the remainder on credit. This 15% on credit is not that we do not have the money (in most cases we do), but we want to ensure we keep an active credit activity. For example, every month we have preauthorized withdrawals from our credit cards for two charitable organizations and Netflix. Because we have the monies to pay this off this is simply to ensure that our credit cards are not dormant for a long time. My worry is that if we use our credit cards more, we will lose track and spend beyond our means. We use cash and our debit cards a lot so the money feels real. Groceries, gas, insurance, entertainment etc. we all pay for these expenses with cash or our debit card most of the time. However, in order to take advantage of a cash back credit card we would have to spend a lot more on credit.

There will be no credit card application for us in the near future. We still find opportunities to save on costs by using multiple loyalty points and coupons and I think that might be enough for right now.

Do you strategically use credit cards to earn cashback, travel hack or points? How do you find your spending habits when using cash/debit versus a credit card?

 

Categories: Credit, Debt

Tags: , , , , , ,

12 replies

  1. If we can charge it to our credit card (without incurring additional fees), we do!
    We have a Canadian Tire World Mastercard and shop at the store on a weekly basis. To date in 2017, we have received $157.98 in product and services. Our savings work out to around $500 a year at no additional cost to us (I was going to say “no cost” but rumour has it that consumers pay for the x% that credit card companies charge so in essence, we are paying for it one way or another).
    Sure this means that we have to pay our car insurance for the entire year in one month, however, I budget for that (we are FI and always have a few months ahead anyways) and I’m not earning 1% (or whatever the “cashback value” is) in my bank account.
    I am diligent about paying our (one active) credit card bill off in full every month. Note that I have a budget so I know what it will be (baring any emergencies).
    I’m interested to read your post about travel credit cards and see if I can get my annual girls trip for “free”. Last year I flew to Las Vegas for $158 on air miles points (instead of $600 paid to a major airline).
    Pleased to find a Canadian finance blog #newfollower.
    Besos Sarah
    Splitting my time between Ontario and Mexico

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    • Wow that’s great. It appears you have found an effective way of taking advantage of the perks of your credit cards. We are considering getting a West Jet credit card for the miles but Not sure if that’s the best way to go. Awesome that your FI. We are just starting our FI journey.

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  2. I think you definitely go with the cash rewards credit cards. I just wrote about the issue on my blog

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  3. I have recently opened a credit card with cashback rewards and you made me seriously think about the way I want to use it.

    Liked by 1 person

  4. I love how you explain it!
    I keep my credit behaviour in check by acting like it’s a debit card and paying it off weekly, when I check my budget. It was a really slow build for me as I had given it up for quite some time.

    Liked by 1 person

    • Thanks! Most of the time we have zero owing on our credit cards but I would be lying if I said that is all of the time. If we do have a balance it is usually never more than $300-$400 and we pay it off within a month or so. We actually pay off the credit card right away with the LOC and then pay off the LOC in a month or so. I dont think I am quite in the clear with my spending habits. I would hate to put us in a situation where we could go back into debt just for cashback money. Not worth it. It is a great card though (minus the high interest rate). If we alreadt didn’t have such a great card, we would probably make the switch.

      Liked by 1 person

  5. It sounds like you made the right decision! One of the dumbest things (for me) that I’ve ever done was to open five credit cards. I could have handled just one, or even two, but the more access I had to spending, the more I felt I needed to spend to utilize the ‘money’ until I was spending way more than I was able to pay off. If there’s ever any risk of making that mistake again, I hope I’ll be strong like you and say no!

    Liked by 1 person

    • Thanks for sharing your story. I know what you mean. We have one credit card each and another we share between the two of us and even that seems like a lot too me. That is why I think it would be difficult for me to travel hack using credit, even if I had the money to pay it off. It takes a bit of work to juggle all those cards and keep current with payments. I am glad that you learned from past spending mistakes. We all have so much to learn from each other.

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