Your credit card signup bonus is not worth it
It’s time to cool off the credit card hysteria
If I hear someone talk about the Chase Sapphire Preferred Card one more time, I am going to have to murder myself. I get it. It’s a credit card. It has a great signup bonus. You can earn awards quick and redeem anywhere.
It sounds like a great deal that you should be running for, especially since so many people have the card and they can’t seem to stop talking about it. People are practically foaming at the mouth in the financial and points blogosphere about the genius of churning and the incredible credit card signup bonuses they are getting.
Unfortunately, even the best credit card bonuses can’t counteract the simple fact that the vast majority of people can’t handle consumer credit responsibly - including me! Even if you can -or you think you can- there simply isn’t enough benefit from a credit card signup bonus to waste your time signing up for one to get the bonus (expect in the most specific of circumstances).
Here are the three reasons why your credit card signup bonus isn’t worth it.
Your credit card signup bonus isn’t that big
Let’s take a look at that Chase Sapphire Preferred Card one more time. If you signup there is a 60,000 bonus point reward. That sounds like a lot! But it isn’t as great as it seems. Even Chase themselves note that this bonus is worth about $750 in free reward travel on their portal.
Other cards are similar or worse. I have been a frequent flyer with Alaska Airlines for years, and have had an Alaska credit card since I was in college, so I will pick on them. Alaska Airlines has offered a Visa Signature Card for years that has a 30,000-40,000 point signup bonus. Under optimal reward availability, you could theoretically redeem a roundtrip ticket for two with 40,000 points. But, since Alaska prices it’s rewards based on demand (meaning that more expensive flights are also more expensive to pay for with miles), you would be hard pressed to find more than $1000 of value from that signup bonus, and in most cases it would be much less.
A credit card signup bonus is never going to be worth more than $1000-$2000. That may sound like a lot of money, but as I will prove at the end of this post… it pales in comparison to the real price you end up paying.
You only get the signup bonus once, then all you have is the incentive to spend
Guess what? That signup bonus is a one time deal! After you’ve used the bonus you just have a credit card. At that point, you’ve seen some value from the card so you will probably continue to use it. It’s only human nature. Once you know that you will get something in return for spending, there is a natural incentive and inclination to continue using the card.
The problem is that the incremental value from using a credit card after the signup bonus has been earned is incredibly small. The Chase Sapphire Preferred Card gives you 1 point for all spending except food and dining, which is 2 points per dollar. That means you’d have to spend $30,000 to earn another $750 of value from the card. And that is for a GOOD credit card!
Most people can’t handle credit cards responsibly
I know, you aren’t most people. I’m not either, and yet I still struggled with credit card spending for a long time. As you can see below, in 2017 I spent over $27,000 on my credit cards… for almost no value received in return at all. Maybe one free ticket. In the back of my mind I was always justifying my credit card spending because I was “getting something in return”, but what I really got was a financial anchor around my neck.
Here’s the thing: I had ZERO credit card debt in this period. The issue was that I was never able to save because I was always paying off my credit card balance. I never got into trouble because of my credit cards, but they still held me back from saving and putting my money to the most responsible use.
I’m not the only one. According to the most recent Experian report, the average American has a credit card balance of $4,293. The Federal Reserve estimates that total credit card debt is over $1 trillion.
Think about it. If even half of the population was able to handle credit cards responsibly, there wouldn’t be any credit card bonuses at all. That’s why it’s insane that there are so many bloggers advocating for churning! They are literally feeding the lambs to the wolves.
Living the no credit card lifestyle isn’t so bad!
For the past 5 months, I have been living credit card free and it’s been amazing. Sure, I am not getting bonuses for my spending, but I’m also spending a lot less than I was before. The money that I was pouring into travel and superflous things I didn’t need is going towards my long term plans and goals for early retirement. I feel like I am in control. My incentives are aligned to my goals, and my spending is aligned to my incentives. I have no plan to go back to my old ways, or sign up for a new credit card, but I will admit there is one exception to my ban.
The one exception to my credit card ban
If you are someone who travels a lot for work (and you expense your travel), it can make sense to get a credit card with the airline or hotel chain that you end up using the most. Because rewards for credit cards are aligned to the amount of spending you do with the associated brand, the earnings accelerators can tilt the balance back in your favor. And, if you are getting that cash back from your employer anyway then you don’t have to worry about overspending as much.
Still, I’m staying away from credit cards and their fancy signup bonuses. You probably should too.