The Psychology Test For Credit Card Rewards

The following is a guest post from Mike who runs CreditCardForum.com. He started it nearly 4 years ago as forum for rating credit card deals, where consumers can openly post their compliments and complaints about a given credit card.

When it comes to credit cards, chances are you either hate them or love them. For those in the latter category, the argument is made that the earned rewards are the equivalent of saving money (and therefore, credit cards are a good thing). In theory that is correct, but you have to factor in the psychology, too. 

Sometimes the psychology of earning rewards leads us to spend more. For some it’s quite easy to identify this problem but for others, it’s not always so obvious. Based on actual discussions by members on my site CreditCardForum, below are 3 scenarios you should test yourself with.

Test #1: Do Reward Categories Influence Where You Shop? 

It goes without saying... there are a plethora of credit cards that give store specific rebates. For example, the Target store card will earn a 5% rebate at Target. Then of course there are many cards which don’t discriminate by store, but rather a category of stores. For example, the Chase Freedom gives 5% at all drugstores for 3 months out of the year.

Do cards such as these influence where you shop? If so, you probably fail this test. Because the one and only criteria you should go by is who sells a particular item the cheapest. If you restrict yourself to buying a particular item at say, Target, just because you have their rewards card, then you may be missing out on cheaper prices elsewhere (like the set of dishes I bought on Amazon last week for $20 which cost $40 at Target).

Test #2: Do Holiday Bonus Rewards Sway Your Spending? 

Every year during the 4th quarter, credit card companies mail out promotions to their existing cardholders, to try and convince them to use their card for Christmas shopping. For example, in October I was sent an offer for my Amazon credit card – spend $2,600+ by December 31st and receive 5,000 bonus points.

The banks customize these offers based on your spending. If I was already expected to spend that much, Chase would have never sent me that offer. However since I only put a couple hundred per month on my Amazon card, this promotion requires me to spend around 4 to 5x my normal amount.

If I just shift spending from another card onto my Amazon card to meet the threshold, this isn’t a problem. However be careful, because I have seen people on my forum say things like “I need to find more stuff to buy before December 31st” so they can meet the spending requirements for their bonus. If you have to do that, you’re just falling for the bait.

Test #3: Are You Paying for Unused Rewards and Benefits? 

One of the biggest problems I see now is that people apply for credit cards they simply do not need. Truth be told, unless you are an avid traveler or big spender, there’s probably no point in paying an annual fee for a premium credit card.

For example, there was a member on my forum who said he really wants an American Express Premier Rewards Gold Card, yet he spends less than $1,000 a month and doesn’t travel. That card gives 1 point per dollar on regular spending, 2x on gas and groceries, an 3x on airfare.

Even if half of his annual spending was on the higher reward categories, when you do the math you will see the value of his total annual rewards will probably be only $200 to $250. Subtract the $175 annual fee from that and he has probably only made $25 to $75. Definitely not worth it, when you consider that using a free 1% cash back credit card on $12k in spending would have netted him $120.

The lesson here is to run the numbers before applying for a fee-based card. Don’t get drawn in by the allure of higher rewards and benefits if at the end of the day, you aren’t using them enough to make it worthwhile.

The Solution: Avoiding Reward Categories Altogether? 

If they cause problems, you may be better off avoiding category-specific rewards altogether. Instead it might make more sense to just use one card that gives a higher rebate on everything regardless of category (that way you won’t be tempted to spend more at certain places). For example, Capital One gives a straight 2% on their Venture or 1.25% on their Cash Rewards credit card. However the best out there are probably the Fidelity credit cards because they give an unlimited 2% on everything with no annual fee. The only catch is you need a Fidelity account to get one.

Last but not least… if you ever carry a balance then you shouldn’t even pay attention to credit card rewards. Instead, you need to focus on paying off that debt as quickly as possible and shaking your bad financial habits. Because why care about 1 or 2% cash back when you are paying 10 or 20% interest?

Photo By: Images of Money

5 Ways to Shake Your Bad Financial Habits

The following is a guest post from Nisha, who represents a site called Compare Logbook Loans, which specializes in providing loans for people with bad credit.

Financial bad habits come in many forms. These all too common financial missteps could consist of spending too much, not saving for the future, or not planning for irregular expenses. But, whatever your bad financial habit, there is likely an easy solution that will help you to change your financial situation for the better, regardless of the cause. Below is a list of techniques that could help you change your financial life and break the financial bad habits that have been holding you back along your path to paying off debt, saving more, spending less and building real wealth.

Avoid Spending Extraneously 

The easiest way to improve financial habits is to avoid spending on unnecessary items. In some cases, this may mean that you need to eliminate the temptations in the first place. Maybe you need to find a different way to work that doesn't pass the coffee shop or clothing store that you frequent. If you are an online shopper, maybe you should remove credit card numbers or shipping information saved at online retailers. If you already have too much, maybe just cleaning out your closets and de-cluttering your home will allow you to take stock of what is already there and limit buying duplicates of what you already own.

Keep Routine Expenses in Check

It is easy to overspend on groceries or gas because they are essential in daily life. However, there is still a limited amount that can be spent on them each month. One technique to budget these routine expenses is to use cash for food and gas. Studies show that people tend to automatically spend more when using a credit card than when using cash and logbook loans. Other techniques for saving money on these routine expenses are to eat at home instead of dining out and combine car trips to stretch these categories even further.

Plan for Unexpected Expenses

Unexpected recurring expenses are probably one of the biggest culprits when it comes to causing consumer debt as they are frequently financed using credit cards. Unexpected expenses such as Christmas gifts, taxes, car registration fees, vacations, back-to-school supplies and many other items fit into this category. Because these expenses don't happen every month, many people fail to plan for the fact that these costs may be right around the corner. One good way to stay ahead of the game is to look at last year's spending and set aside money for these expenses.

Make Saving Automatic

Saving is often hard to remember to do each month. One great way to automate your savings is to have a portion of your income deposited directly into a savings account as an automatic deduction from your pay check or to set it up as a "bill" in online bill pay. It doesn't have to be much but even $50 a month will add up over time. Having an emergency fund will provide a cushion when the unexpected happens, which will keep the credit card companies at bay.

Find Your Motivation

The most important thing to remember is that breaking bad financial habits is hard work. You have to decide for yourself why you want to do this. Is it to stop the collection agency phone calls and the stress of being unable to pay bills? Do you want to provide a better life for your children? Travel to Aruba? Find the reason that will keep you motivated to make the better decisions.

Chapter 13 vs. Chapter 7 Bankruptcy

The following is a guest post from Justine Anderson, who specializes in getting out of debt options for people battling extreme debt. Thanks for the info, Justine!

If you are looking to get rid of your debt, it would be wise to know the options open to you. One attractive option might be bankruptcy, but it is not the sexy option that it may look like from the outside. In fact, going bankrupt can ruin your credit score while (in the case of Chapter 13 bankruptcy), not even eliminating all of your outstanding debt. This makes it extremely important to completely understand your bankruptcy options and strategies by consulting with an attorney or legal professional before determining whether bankruptcy is the option for you. 

Chapter 13 Bankruptcy:

If you file Chapter 13 bankruptcy, you are forced to turn over your financial records to the bankruptcy court. A debt settlement is then reached based on your assets and how much you can afford to pay. Chapter 13 is the most common type of bankruptcy filed and most people that go bankrupt are forced to file under this method.

When it comes to the bills that generally fall under Chapter 13, you can expect to see credit card bills, medical bills and any accounts that have been sent to collection or have been repossessed. If you want to avoid bankruptcy, you can try to consolidate your debts before going this route.

One major drawback of Chapter 13 is that even though you are repaying the debt over time, it is never considered satisfied and will stay on your record for 7 years.

Chapter 7 Bankruptcy:

Chapter 7 is the legal category under which most people wish they could file. In Chapter 7, most of your debts are going to be completely discharged without having to pay them back. For people who have crushing debt, it might be easier to simply file bankruptcy than attempt to pay off their massive debt load, especially if these folks can qualify for Chapter 7 bankruptcy.

Keep in mind that your bankruptcy is going to stay on your credit report for 10 years if you file under Chapter 7. In addition, regardless of whether you file under Chapter 13 or Chapter 7, the bankruptcy will remain a matter of legal record for up to 20 years.

The Bottom Line:

Your credit score is going to be shot no matter what method of bankruptcy you choose. Bankruptcy should always be considered a last resort and you should consider debt consolidation methods before going into a bankruptcy lawyer's office. If you are smart and driven, you will likely work out a plan with your creditors without having to pursue bankruptcy. Your creditors will most likely accept a debt settlement plan if you are reasonable about your offer to them.

How to Make Extra Money from Home

The following is a guest post from Nisha Sharma. Thanks for the great post Nisha!

There are many ways to make extra money at home. The Internet has opened up a world of opportunities. With dedication it is even possible to make a full-time salary by telecommuting. If you are considering trying to make money online, below are a few types of work that you may be able to explore for increasing your income.

Data Entry/ Transcription Jobs: 

Many people earn extra money at home by doing data entry or transcription. Data entry appears in many forms, including order processing. When it comes to transcription, companies of all types often need to have their meetings or presentations transcribed. Thanks to modern technology, these companies can simply upload their files for home-based transcribers to work on. Medical transcription is an especially popular field. Transcribers need only possess the most basic software and sound equipment, but many choose to purchase foot pedals so that they can work faster.

Phone Support/ Customer Service Jobs: 

Another major category of home-based income is phone support and customer service. A large number of corporations have realized that by outsourcing their phone support to telecommuters they can save money while continuing to offer quality services. If you have any phone center experience, you will be more competitive for these positions. Also, you will need to have a dependable, high-speed internet connection and a good headset with a microphone.

Write for Your Wealth: 

People with good writing and language skills can benefit from the next major category of online moneymaking activities, which consists of freelance writing, editing, and proofreading gigs. Some of these opportunities require substantial work experience or advanced degrees, but there are also opportunities for those who are just starting out. A number of sites exist where customers post projects and writers either bid on them or simply claim them and start writing. Writers can expect a steady supply of diverse projects to work on.

But Beware of Scams:

It is always vital to beware of scams when making extra money at home. In the virtual world, just like in the real world, if something sounds too good to be true it probably is. Sites promising thousands of dollars in weekly earnings with minimal effort should raise giant red flags. These sites are often phishing outfits designed to get unsuspecting victims to supply their personal details. There have also been cases of scam sites tricking people into working for free. A promise of eventual payment is made, but no payment ever arrives. Make sure to verify that a site is legitimate before giving out any personal information or performing any work.

Other Options:

Creative thinkers can also build their own moneymaking activities. If you have too much stuff, sell some online. If you are an artist, consider selling your work online. If you are good with design, consider designing websites for clients. The only limit is your imagination.

My name is Nisha Sharma. I represent a site called ClearDebt.co.uk. I love to write, especially about travel, finance and business advice. Feel free to visit our site for more information on credit card debt.

Photo By: Sean MacEntee