How shopping portals and rewards programs fix credit card overspending

MilesAbound recently published “Going all cash – should you stop using credit cards for everyday spend?”  In that insightful post, MilesAbound pointed out research that shows that credit cards induce people to spend more than they would if they used cash instead.  He proposed, rather than going all-cash, that a good strategy would be to use cash for everyday spend, but continue to use credit cards mostly just for manufactured spend.  His basic argument is that the rewards earned from everyday spend are pretty small, so most people would be better off saving money by going all-cash than by earning credit card rewards.

cash

Here’s the problem with MilesAbound’s argument: my readers and I are not necessarily at all like “most people”.  I can’t speak for you, but in my household, shopping portals and rewards programs have led us to spend less, not more.  What follows is a real life example based on my memory of events that took place about a week ago.  The following is a conversation between me and my wife…

Wife: I need to buy some new clothes.  Do we have any special deals at Lands End?

Me: Well, yeah.  I still have a pretty sizable Sears gift card that I got for 21 points per dollar.

My wife then searches LandsEnd.com for about 30 minutes…

Wife: OK, I found what I want to buy and I’m checking out.  Where’s the gift card?

Me: Did you log in as me first? That way we’ll earn ShopYourWayRewards points.

Wife: OK, I don’t know what that means, but if you say so…  Ugh!  I just logged in as you and now my shopping cart is empty!

My wife then spends about 15 minutes re-finding what she wants to buy…

Wife: I’m checking out again, where is that gift card?

Me: Wait, did you go through BeFrugal to get 8% cash back?

My wife glares at me…

Wife: That’s it. I give up!

And, she never did buy those clothes. 

The story above is not an isolated incident.  A focus on rewards has led us to forgo almost all impulse shopping.  For example, if I’m at a store and see something I’m interested in buying, the following thoughts inevitably go through my head:

I wonder if there are any good coupons online?

I think I remember that TopCashBack offers 7% cash back here.  I should order online.

Oh wait, Staples.com sells e-gift cards to this store.  I should go through uPromise to Staples.com to buy the gift cards.  That way I’ll earn 5% back and 5 points per dollar with my Ink Plus card.

Once I get a gift card to this store, I’ll go through TopCashBack to place the order.  And, I’ll use online coupons to save even more.

This sounds like a lot of work.  I don’t really need this thing.

I’m not making this up!  I can hardly remember the last time I’ve made an impulse purchase.  My wife still buys a few things here and there when I’m not looking, but I have little doubt that our overall impulse spending has gone down considerably.

What do you think?  Do credit cards cause you to spend more?  Or, have you become like me… almost paralyzed by the desire to maximize savings and points earned?  Please comment below.


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Comments

  1. I don’t think I’ll ever go back to carrying cash for everyday purchases. Even *small* cashback/rewards is getting something back for your dollar. Not to mention getting cash and having only a finite amount available is a hassle.
    Even when I make impulse buys I do my best to minimize the residual damage by utilizing portals, etc. :)

  2. I both agree and disagree with your points. While I certainly agree that for very many of the more experienced points collectors, the addition of credit cards to our wallets doesn’t lead to impulse shopping, the same isn’t necessarily true for newbies. There are many people out there reading these blogs who see the lavish trips that the bloggers are able to afford and want such things. The problem is that these readers do not understand the nuances of the points game and often rush into things without fully figuring them out. They get a ton of new cards quickly and just spend spend spend to get as many points as quickly as possible. THey don’t fully understand the differences between all the different miles and points they are collecting and then have no clue how to use the points or worse yet they have so many different kinds of points that they don’t have enough of one currency for a trip. All one has to do is go to flyertalk to see the number of people asking how to use their points. The bloggers lure readers into by showing them how to accumulate tons of points, but don’t show them how to use the points.

    • I definitely didn’t mean to imply that my experience was true for everyone — just people like me. I agree that there must be tons of mile collectors (newbies and others) who overspend as you suggest

  3. Also, I think your example is a bad one. In that example you had a sears card laying around, which you claim helped you control your spending. You ignore the fact that you purchased a card to a store based on the fact that it would earn you tons of miles rather than your need for anything in particular from that store. That in an of itself is impulse shopping of a sort. You bought the card because it would earn you lots of miles not because you needed anything from Sears. What if your wife didnt need any clothes for a while. That card would sit around earning you nothing while the money would have already been removed from your bank account long ago. Sure there are ways to liquidate the card, but the money on that card will never be as liquid as cash.

    • My gift card purchase wasn’t impulse shopping at all. I bought it knowing that I can use that credit for many things: Sears, Kmart, Lands End, gift cards (including Visa gift cards), travel, etc. I have no doubt the credit will be used, but I’m careful not to use it just because it is there.

  4. Budgeting is more about psychology than investing. An issue you respect in your article. But the thing is, the type of person who needs to go cash-only probably isn’t going to be so great about continually shopping all the credit card deals out there. Taking away the credit card and giving them cash is about introducing pain into the equation. If the temptation is there to spend on the credit card for a impulse purchase just this one time! It kind of defeats the purpose for these people. Just one time becomes just one more time, etc., etc..

    But being picky definitely helps me not spend too much. And I think that is what your article is about. Awhile back at Whole Foods, I got a free sample of some pimento cheese dip that was incredible! Walking over to the shelf, I was just hoping I didn’t buy this stuff. Looked at the price… damn, it was affordable. Starting thinking about how yummy it was… Looked at the ingredients to see if it was mostly corn syrup like a lot of products… Nope, all natural ingredients! Starting to resign myself to purchase it… Checked the nutrition label… Damn, look how much fat there is in junk! Bingo, put it back on the shelf and walked away.

    Checking those three things on stuff I buy at the grocery store goes a long way towards keep my grocery bill down.

  5. My wife is the other way. Went into a store, tried on the perfect Navy pumps (I am told they are hard to find), then went home, went to the right portal with the right card and got 3 pair (as I am told they stop making the perfect color), and got free shipping. I just was happy for the points! ;-)

  6. I get myself into some trouble in two areas. One is dining out. If I was paying cash I’m not sure I would spend as much but hey it’s just a number on a piece of paper. The other is for large purchases. The wife wants a new sofa or something and hey I’ve got like $200k in credit limit so whatever you want honey. I think this comes from being spoiled into a luxury travel exposure. For example I flew ORD To CDG in First, stayed at the 5 star hotel so we come home and see our beat up old sofa. I can’t live like that anymore :)
    I would suggest anyone getting into the card churning point hobby read or go through Dave Ramsey’s Money Makeover courses.

  7. I’m not really sure whether miles/points makes me impulse shop less. We have had a broken microwave for a few days and I’m wondering how long I should wait to see if a nice portal bonus comes along. It could be November before we get a new one.
    Either way, I think the post is hilarious!

  8. I don’t have anything good to say about the above story. I’m sorry. While it’s fine to restrain from impulse buying, what you described is no way to live.

  9. I think every family’s dynamic is a bit different on how they spend money. In my family, we see credit cards and cash the same — they’re both money. That’s probably because we’ve gone 95+% electronic many years ago, and just view cash as an inconvenient way to spend. So for us it’s more a question of whether all these deals cause us to spend more money or less. I do think that sites like slickdeals do cause you to buy more because you’re getting such a “deal” on things. That said, you spend less per item. I guess as long as your finances are in good shape, it doesn’t matter. I will say our online ordering process is similar to yours, but things tend to stay in the cart, and nobody seems to get too bent out of shape as the purchase is delayed a few minutes to hunt for the various codes and cashbacks.

  10. I don’t experience the portal paralysis you describe, and occasionally when my wife wants a more expensive version of a product than I want to buy, I think “what the heck, I’m getting x points per dollar anyway” and go ahead and buy what she prefers, but that doesn’t happen often. I’ve also donated more to charity when I’m trying to hit a minimum spend, and to make up for the credit card fees that the charity will get charged, but I feel good about that. So I’d say that MileAbounds assertion may be true for me. But on the other hand, when I get stopped by some guy in a parking lot asking for gas money so he can make it across the country to visit his sick mother or start a new job, which I always figure is bogus, now I can say “I don’t have any cash on me” when I used to give them $10 or so.

  11. While I love using a credit card for the convenience and for earning points/miles, at the end of the month, I still pay for all credit cards in full. That keeps me from overspending or impulse buying.

  12. Anecdotal evidence isnt very reliable. The only way to do this is to track your real spend to the dollar for the next 3-6 mos using CCs. Then go another 3-6 mos doing all spending on cash only. The theory is that just using the plastic makes you spend more (even if you pay off your balances in full)

    • MU – I think you are right but I would go one step further and say the only real way to see is to do controlled experiments where the “lab rats” don’t actually know what is being tested. If you do the experiment you talk about you will be “trying” to make sure you keep in your budget more than you normally would.

  13. It doesnt matter if you get 25% off through portals. What matters is if you would buy the item (or a cheaper item) if you were instead paying with cash. Most people think they are above average, but that cant be true by its very definition. I suspect most experienced miles/points enthusiasts think they are not spending more by using credit cards rather than cash. But i also suspect if we could instead give them cash to use instead of credit cards, they would be spending less as its harder to part ways with that tangible item such as cash than using a plastic card that should be paid in the next month

    As frugal as i am, and as seriously as i budget, even i spend more that i otherwise would to some degree. This is why my ultimate goal is after getting married this year to change my habits to something similar to what milesabound proposed. It helps that my fiancee would rather use a debit card since she knows where she stands financially immediately. We have already discussed moving to cash as time goes on

    And Fyi, I ms quite a bit, and float >10k constantly. So not opposed to mile/point/CB accumulation. But i know its easier to justify spending by using a 5% cb card than if i had to shell out cold hard cash.

  14. Quick heads up on the Fidelity Investment Rewards link with the $75 signup bonus. Just got my card in, called to activate. The representative has no clue. I’ve now been on the phone where representatives are conferencing me in to various branches of Fidelity, Card services, etc. So far I’ve spent over 30 minutes on the phone. I even said “look google Fidelity Investment Rewards American Express, click on that link, it says 7,500 points right there” and that has, rather than resolving the issue, involved the representatives I’m on the phone with calling even more departments.

    • Ugh, unfortunately my gf is going through the same thing. They had no idea that this promotion even existed and couldn’t find the promo code in their database…we’re still waiting on a phone call from someone at Fidelity

      • Exactly! When I called the number on the card he’s like “yeah your card gets 2x points for all purchases which is a great bonus!” I said no where’s the SIGNUP bonus. He called fidelity investments on a conference call – the lady that answered said “we have no record of any sort of 7,500 point offer, though the link you told me about seems legitimate (yeah I mean I got approved from it haha). Normally we’d be calling you, man at credit card services, rather than you calling us, to figure this out.”

        Very frustrating.

  15. Have found that having many credit cards actually stimulates impulse buying. Have yet to be able to resist the temptation to buy more bank accounts, reload cards, gift cards, dollar coins and the like. Yet at the end of the month my credit card account balances are still zero and I seem to have more cash in my pocket. Does this mean I should spend more to assure the economy does not go into another recession?

  16. used to do a lot of impulse buying at costco, knowing i can return easily. now i can confidently say that’s almost entirely gone with my phone, pulled it out & check reviews & prices online (usually amazon) is tremendous way to shop more intelligently.

  17. The post is funny, but its never worth it to shop through these cash back portals in my experience. Ever since I started doing this for the past 3 months, I have shopped around 9 times or so through these portals and they were able to track only 3 times or so. Some of those purchases were Amex gift cards only for the portal cash back which I never got. Filing a claim for a 16 cent cash back on a $24 best buy item is not worth anyone’s time. While I enjoy reading these blogs, I think these practices only help when you are advertising and making a ton of extra money through affiliate commissions. In almost all other cases, you are dragged into the vicious circle of MS/using points on vacations which results in more unplanned/unwanted spending.

    • That’s strange. I shop through portals all the time and it is extremely unusual for the purchases not to track successfully. In fact, I think I’ve earned more rewards over time than I should have. Its possible that you have some issue with your computer such as a toolbar that steals portal clicks or a browser set to not allow cookies or something like that.

    • Sounds like something isn’t going right for you. I made over $500 on the topcashback shopping portal with amex last month and another $500 cashback from credit card cashback. It didn’t take much time for me at least.

    • kk, there are credit cards out there that you can make $500 just for signing up and spending money you would have spent anyway.

      You are doing it wrong.

  18. Thanks FM for the shout and the thoughtful response. I actually need to respond to my own commentors but I would say in general most people feel like this is true, but not for them. But as has already been pointed out you actually have the gift card because you were responding to some deal. Been there, done that!

    I think for sure there is a spectrum where if you gave person A a credit card with a $100 limit they’d overspend by $100 each month and person B with the same card would only overspend by a penny. But if I focus on controlled experiment studies of real samples of real people the evidence is overwhelming, and I think the reality is we all think we are better at this than we actually are.

    • While I haven’t read the particular studies you mention, most studies are about averages: on average people spend more with credit cards than with cash. This does not mean it is true with all people or with all situations. That said, I agree that most people probably do overestimate their ability to control spending, and for most people in many situations, using cash instead of credit would probably help.

  19. The comment about alimony payments is hilarious. I read this to my wife – she rolled her eyes and said she can relate. I actually do feel that I spend less when I’m paying with cash…something about handing it over gets to me. However, we still are using CC’s for almost all spend.

  20. Yawn. Just spend significantly less than you earn and you’ll be fine. If you can’t do that, you deserve what you get. And thankfully, most can’t do that hence the very generous rewards for those who can.

  21. I’ve thought a lot about this. When I first got into the hobby my budget-conscious husband insisted it would encourage me to spend more than I would otherwise. He was so insistent that I actually created a monthly credit card budget for ourselves. Now I pay FAR more attention to our outlays than I did before.

    So yes the miles-points pursuit has made me curb my spending – but primarily to make sure my husband doesn’t mess with my favorite new hobby!

  22. That’s why on a lot of these “mazes” you need to point it out in step by step fashion……….your conversation with your wife almost assumes she has read every one of your posts…..neither have we…….as a master of this process that must frustrate you that we are so stupid at times…….but it is reality…….at least as you fly by us you are not simultaneously talking down to us as some sites do………..that is the ultimate test that keeps you fans……….every day is a new learning experience………

  23. The reason we are here I think is to learn how to master the spending process as related to frequent flyer miles/points……..ultimately we are each responsible for our own self control or lack thereof………and the transparent story you shared in your house tells us all that there is a huge gulf in the full understanding of this game…….what makes this site so special at times is how well you understand that gulf while pushing the envelope……..

  24. This is too good! This is exactly my wife and I…

    I need new black shoes from khols (wife alralready knows that khols has consistently been 10X bonus at URM)

    Ok, we can go see what they have in person and order them online

    UGHH. Ok fine.

    Oh and I forgot. We’d also need to get some more GCs first cuz we don’t have enough to cover those shoes…

    Never mind I don’t NEED new black shoes…

    I couldn’t agree more, FM. Stuff is overrated.

  25. I thought the post was hilarious. I have stopped making a purchase because I forgot my user name/password, then ended up just not buying something. On the other hand, I’ve also lost out a great deal on a coat in the color I wanted because I wanted till I was home to order and the item SOLD OUT!

    I do think spending cash makes people more conscious of what their spending. It’s too easy to swipe the card and then small purchases add up. . .But, I’d rather getting the credit card perks, so I’m not going back to cash.

  26. I don’t know if I spend more or less with credit cards, but I definitely defer purchases. I saved up some planned, large purchases and some charitable contributions until I got the Citi AA Executive card requiring $10,000 spend. Also, I couldn’t have been happier when the mechanic said my car was due for a major routine servicing. He suggested it could be deferred a few months if need be. No way! Now!!!! He probably doesn’t see many folks so eager. It couldn’t have come a better time.
    Nowadays I hate to waste a big expense on routine spending.

  27. A good (better?) counterexample could be overspending (say buying 36 rolls of paper towels when you need 12) to get the reward feel of shopping portal + cash back etc.

    While the paper towels won’t go bad soon, you could feel as if you were stocked up which gives a sense of invincibility and probable over consumption.

    If you consequently use 10% more paper towel to get 7% cash back, you’ve lost 3%. It would have been easier to just buy whatever you need and even better yet use 10% less.

    The point here is that for the SMALL things in life, the marginal analysis is VERY TIGHT, hence being a bit stingier with cash may profit.

    The even better example is starbucks. It’s easy to get 5x and get gift cards that way (Staples). But NOT having a gift card makes me go less, and therefore I win. Each $5 I save is worth upwards of 500 miles, which at 5x took $100 of spend to get.

    For the bigger things in life (Air, Hotel, Rent, Utilities) I go OUT OF MY WAY to get more more more miles, rebates etc. And now that I think about if we probably spend too much there too (we=frequent flier community) because of a mix of status, miles, elite amenities etc.

    Manufactured spend is the true gravy, but let’s not forget the cost of time. So I relate to MilesAbound, esp. since increasing my income has helped a ton more than miles! (this coming from a guy with 14 credit cards).

    FrequentMiler you are a master and the best at what you do. Keep it up! My comment is more on the nuances and reality check, not a disparaging comment.

  28. On a serious note (as opposed to my previous comment), I don’t dispute the veracity of the studies, but for me, I’m not sure how much cash would help. i no longer view cash as the primary way of buying things. What I mean is that even if I’m not using a credit card, it’s hard to eradicate from my mind the knowledge that there is hundreds of thousands of dollars worth of “credit limit” in all of the cards that my husband and I have. And even if we didn’t have them, we know we could get them. So, using cash may help, but I think that the availability of easy credit probably has a similar effect to using a credit card to buy things, even when there is cash. We will always know there is an available reserve of money out there. Unless you get into serious financial trouble, which we are hopefully careful enough to avoid, the current banking environment IS a giant credit card, whether it’s cash we’ve using or not.

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