How would you feel about a credit card that...

[randeman]

...required you to spend $5000 a month, but had to be PIF before the due date.  Then you get $250 back when PIF.  That is the only perk.  Most of us would have to use that card exclusively.  If so, fewer/no other perks from other cards.

[takeshi74]

It effectively wouldn't be a credit card.  Any only 5% for all that?  Might be worth it if it covered all spend with no caps.

[Anonymous]

5% isn't bad all things considering, unless I'm missing something. In my case, though, I don't have $5 worth of CC spend/month, so ...

[jamesdwi]

That level of spend monthly would require some major baller status to make that much net income, not including Morgage, and auto loan. Unless some MS was happening. 

[Anonymous]

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@jamesdwi wrote:

That level of spend monthly would require some major baller status to make that much net income, not including Morgage, and auto loan. Unless some MS was happening. 

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That's true. My net income is a bit above $5k, but I'm limited to only being able to use my CC for anywhere from 3-5 bills per month because they're the only merchants that allow CC payments. If you could pull it off, though, I could see it being worthwhile. At $250/month, that's an extra $3k per year in your pocket, simply for paying with plastic.

[TheConductor]

It's interesting that this question is phrased "How would you feel", not "What would you think".

If there's one piece of advice I could give the whole world about money, it would be to stop making financial decisions with your emotions and start making them rationally.

Anyway, on the topic at hand, a 5% reward rate all the time sounds great, but it would only make sense if your monthly spend is legitimately that high.

Suppose your monthly spend is typically $4k, but you bump it up to $5k so you can get that so-called "reward". As a consequence, you accumulate a lot of stuff you don't need. You have to pay for the space to store that stuff, and you have to pay to maintain it. Your reward is actually costing you money,

Moreover, you have to consider the opportunity cost. What else could you do with that money? Investing it in a simple index fund would make you more than 5% - the S&P 500 returns more than 6% annualized on average. And investing it more aggressively could make you a lot more than that. What about putting it into your 401k and getting matching funds from your employer because you haven't maxed out your matching yet? Those matched dollars are returning 100% instantaneously - spending them to get 5% back would have been a huge waste of a much better reward. Or you could invest those dollars in building or expanding your own business...if you weren't spending them on frivolous stuff.

So sure, I'd "feel" great about such a card if I already consistently spent enough on credit-eligible expenses for the reward to genuinely be rewarding.  But since I don't, the reward is no reward at all. 

[afinch1992]

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@TheConductor wrote:

It's interesting that this question is phrased "How would you feel", not "What would you think".

If there's one piece of advice I could give the whole world about money, it would be to stop making financial decisions with your emotions and start making them rationally.

Anyway, on the topic at hand, a 5% reward rate all the time sounds great, but it would only make sense if your monthly spend is legitimately that high.

Suppose your monthly spend is typically $4k, but you bump it up to $5k so you can get that so-called "reward". As a consequence, you accumulate a lot of stuff you don't need. You have to pay for the space to store that stuff, and you have to pay to maintain it. Your reward is actually costing you money,

Moreover, you have to consider the opportunity cost. What else could you do with that money? Investing it in a simple index fund would make you more than 5% - the S&P 500 returns more than 6% annualized on average. And investing it more aggressively could make you a lot more than that. What about putting it into your 401k and getting matching funds from your employer because you haven't maxed out your matching yet? Those matched dollars are returning 100% instantaneously - spending them to get 5% back would have been a huge waste of a much better reward. Or you could invest those dollars in building or expanding your own business...if you weren't spending them on frivolous stuff.

So sure, I'd "feel" great about such a card if I already consistently spent enough on credit-eligible expenses for the reward to genuinely be rewarding.  But since I don't, the reward is no reward at all. 

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Great post Conductor. Sometimes we need to take a step back and take another perspective in the forum

[randeman]

So, if the spend were lower, say $2500, but the reward is still 5% cash back, more people would be amiable to it?

[barthooper]

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@randeman wrote:

So, if the spend were lower, say $2500, but the reward is still 5% cash back, more people would be amiable to it?

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I would be for sure, but I still don't hit that level for monthly spend on CCs alone.

[pizzadude]

Moved to Smorgas Bored