Diners Club Club Rewards launched in 1985. The world’s first frequent flyer co-brand credit card was the Continental TravelBank Gold MasterCard from Marine Midland Bank (now HSBC) in 1986. The very next year the Citibank American Airlines co-brand was introduced.
Bonuses on these credit cards were laughable by today’s standards and they didn’t earn miles quickly either, there weren’t category bonuses or spend promotions, it’s like Steven Wright says “one mile equals one mile.”
We’ve come a long way since then. Rewards credit cards are big business whether you’re earning 2% cash back or 2 American Express Membership Rewards points per dollar on all of your spending.
I’ve used these miles to travel the world in a way I never would have expected to be able to. I’ve had some amazing experiences, and done it very comfortably, for a fraction of what it would have cost to purchase these same experiences. I’m humbled and grateful for the opportunities that miles and points have afforded me.
Personal finance guru Dave Ramsey though says it’s all a con.
I never met a millionaire who said, "I made all my money with airline miles."
Rich people don’t fall for stupid credit card tricks.
— Dave Ramsey (@DaveRamsey) December 28, 2018
Taken literally, this claim is absurd for several reasons.
- You don’t have to make all their money with airline miles for a rewards credit card to make sense.
- How many millionaires do you know who do not use credit cards?
I — and most readers — get tremendous value from credit cards. We’re going to spend money anyway, why not earn the most rewards? Why leave that value sitting on the table.
The thing is though that while Ramsey is taking a great deal of deserved flack from the frequent flyer community over this tweet, and tweets aren’t always the best place for formulating nuanced arguments, offering advice to people that live beyond their means can take making bold claims that convince them to stop doing that. And if smug self-satisfaction helps set someone on a good financial path that would otherwise be tempted to run up debt because a credit card issuer will extend credit, then Ramsey is doing that set of people a service.
Last month I wrote How Not To Lose At Black Friday. The gist? Buy only the things you would have bought anyway, pocketing savings. Don’t give in to the temptation to spend more money because you’re excited about a deal.
I wrote “This Game Is Not For You If…” about similar mistakes people make with mileage-earning credit cards.
- If you don’t pay off your bill in full each month, don’t pay attention to credit card rewards pay attention to your interest rate (and getting the card paid off as quickly as you can)
- And do not spend more money than you would otherwise spend because you’re using a credit card, or because you ‘need’ the spending to hit a bonus. On average people using credit cards do spend more than those using cash, though a number of factors influence that result.
Of course if you can responsibly manage credit then of course you should be using credit cards. They offer the best rewards for the money you spend anyway, and credit card protections and benefits are far better than those offered with debit cards. Here I’m talking about price and return protection; trip cancellation and delay; lost and delayed luggage just to name a few.
I’ve even written about how the American Express Platinum Card medical evacuation coverage gave one reader $275,000 in value taking care of his father who had a heart attack in Southeast Asia.
Reader Arthur’s Father Being Transferred from Gulfstream to Ambulance at Atlanta Peachtree-Dekalb Airport
Three models for how to think about credit cards:
- If you see credit cards as a tool to accomplish what you want in the most efficient, rewarding, and lowest-cost way possible then you shouldn’t listen to Dave Ramsey — but then you probably weren’t listening to him anyway.
- If you see credit cards as the devil’s work, something that controls you (the card made me do it!) then it’s a good idea for someone like Ramsey to talk in stark terms, with firm rules, that aren’t literally true but can be valuable if they help someone manage their finances effectively.
- Some people don’t pay off their bill in full each month and it actually makes sense for them to do this. If you aren’t paying off everything completely then you shouldn’t be focused on credit card rewards — you should be focused on the lowest financing costs.
People have always had a need for credit. Maybe a car needs fixing to be able to go to work. Maybe there’s an emergency medical situation that racks up bills. Without credit cards the need for credit remains, and you go looking for the next best option (hint: credit cards are better than payday loans, and those are better still than loan sharks who break legs).
Rewards credit cards are appropriate only for people in this first group.