In Financial Planning

Credit card offers are everywhere. We get them in the mail, in our email, and even passed out by flight attendants when flying.

Credit card companies have become very successful at marketing new cards and creating new perks to entice you to sign up and use their cards.

With all the cards out there, it quickly gets overwhelming trying to find the one that’s best for you. Plus, it can be a challenge to “game” the system and earn as many points as you can.

While some people are very successful at doing this, many are not. Some actually spend too much and rack up credit card debt instead of just collecting the rewards they signed up for. That’s why it’s important to be careful when it comes to credit card bonuses.

Types of Credit Cards

There are various types of credit cards that institute a reward program to influence your spending. The benefits of these type of cards can come in the form of points, cash, or other types of discounts. Below are a few examples:

  • Airline Rewards Cards: These can be for specific airlines or could be with big banks that have large rewards programs such as Chase. Sometimes you can transfer or use the airline miles for other perks.
  • Cash Back Cards: These are just as they sound. Cash back credit cards give you a percentage of money back to you once you have paid off your credit card. The percentage can range from 1%-6%; however, there is usually a cap in certain categories. Typically, cash back cards give you 1% for any category or charge and then the cards usually highlight 1 or 2 categories and give you an extra percent or two in those categories up to a certain amount.
  • Points Cards: These cards let you earn rewards for various merchandise, gas, stays at a particular hotel etc. The points do not have cash value.
  • Premium Credit Cards: These are the gold or platinum cards that offer high credit limits, 24-hour concierge services, or even a personal assistant. They give access to exclusive airline lounges and tend to have worldwide travel benefits.

Now that we have an understanding of the type of cards typically offered to the consumer, one question I get A LOT is how can these companies offer all these rewards?

Regardless if you run a balance or pay it in full, the credit card companies will still make money on you, and it’s one reason why they are able to give out huge bonuses for you to sign up.

Those that have balances and pay interest fees to the credit card companies also subsidize the ones that pay off their card in full.

Plus, credit card companies also earn money off of you and your transactions. You just aren’t the one paying for it. Every time you swipe your card, the merchant has to pay the credit card company for the ability to accept the credit card payment. These fees are usually around 2.5%-3% that the merchant has to pay. This is why some merchants offer a credit price and a cash price, with the cash price always being lower. They are passing along some of the savings of not paying the credit card company to you the consumer while pocketing some of the savings for themselves, a win/win for everyone.

So, Should You Sign Up?

I’ll be the first to admit: I love the large sign up bonuses. I really do. 

Let me give you a personal example of the power of a really good sign up bonus. The Chase Sapphire Reserve Card with a $450 annual fee was my most recent card sign up. Why would I choose a card with such a large annual fee? For the bonuses, of course!

When I signed up, after I spent $4,000, I received 100,000 Chase points (redeemed at 1.5 pts through Chase portal) and a $300 travel back credit on anything in the travel category, effectively making the annual fee $150.

I used the 100,000 points to book 3 tickets for our annual family vacation (this year was Hawaii) on Hawaiian airlines through the Chase travel portal. For 3 round trip tickets, it took all 100,000 points and roughly $325. I spent the $325, of which $300 was redeemed back on the card.

If you followed along this far, that means I paid $25 plus the $150 for the reduced annual fee to fly the 3 ticketed passengers round trip to Maui. That was obviously a great sign up bonus, and they all aren’t this good, but that’s the reason I had to jump on it. You will notice Chase has reduced this sign up bonus to 50,000 but it still might be worth it.

Do all cards have these type of great perks? No, not even close. While I love the big sign up bonuses, I simply don’t have the time or desire to want to go out and get every card that gives a perk.

Yes its free money, and if I’m going to spend the required amount in order to get the perk anyway, you are probably thinking that it would make sense to sign up for everything. However, there are a few reasons why this is a bad strategy, especially for doctors in particular.

Doctors Don’t Have the Time

One negative of the credit card points game is that it can be a time management and accounting nightmare. Keeping all these cards open (or closing them on time) and figuring out which ones have an annual fee and which don’t is just a logistical nightmare.

You also have to make sure you have some type of transaction software that can allow you to easily recognize if someone has stolen your card. The more cards you have, the more out of touch with the cards you become.

Another more serious reason is that many people overspend when using credit cards. The credit card bonus can act like a carrot dangling in front of you. If you need to manufacture your spending, something people do when trying to reach really large sign-up bonuses, then it can be tempting to buy things you don’t need.

I have a friend who earned enough credit card points to fly her whole family around Europe for a month, but one of the credit cards gave her a huge $25,000 limit. So, even though all the flights were paid for, she still overspent while traveling because her new credit card with her large limit made her feel like it was okay. Trust me, there’s nothing worse than getting back from a nice vacation and feeling guilty because you overspent. Having credit card debt erases the fun of getting free flights pretty much instantaneously.

Also, keep in mind that having a dozen or more credit cards just complicates your finances and turns it into a second job. Most physicians bill out at over $100/hr. Chasing credit card rewards and making sure you are spending in the right categories on the right cards might take you longer than your normal bill out rate. And, it will likely cause more headaches than a few hours on an extra shift. If you have a spouse who is very organized and interested in pursuing this as their side hobby, then, by all means, have them try to find the best cards for you.

However, unless it’s a killer deal like the one I used to get to Hawaii, I don’t even bother signing up. To me, my time is better spent creating content, helping clients achieve financial freedom, or just hanging with my kids. I suggest you take a long look at what your goals are for your credit card needs. If you want to maximize travel, apply for a well-reviewed travel card and put all your spending on it. If you want to maximize cash back, do the same with a cash back card.

Once you have your one or two main cards, just ignore everything else and invest the time back into yourself and your family. Don’t pay attention to the temptations of the marketing geniuses behind the credit card advertisements.

Ultimately, when you’re a physician, the easier your banking (and credit) accounts are to handle, the more likely you are to take control over your financial situation. However, if you want to dabble in credit card rewards from time to time or to plan one specific trip, it’s fine as long as you understand your limits, stick to your established budget, and don’t spend more than you need to just to earn rewards.

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