Is it worth it to start basing your spending around points and cash back?
– July 18, 2018
Chase released a second-quarter earnings report heralding $8.32 billion in profits, a staggering sum that no doubt sent well-heeled executives and shareholders at the bank scrambling to find an NFL team or election to purchase. The report also contained a tidbit that should arouse the interest of those beyond the financial elite, specifically the news that Chase has shelled out $330 million in credit card rewards—far more than the financial institute expected.
The cause for Chase’s unexpected surge in rewards spending lies in part with a cadres of card users for whom no detail is too small, no benefit too trivial to ignore. These superusers have helped fuel a rewards war between major credit card issuers, which hope to capture high-spending customers. But is it worth joining their ranks and investing the time, energy and—most importantly—money that comes with being a superuser? How long will credit card issuers throw around enticing rewards like so much chum in the water for consumers to gobble up?
How We Got Here
“Superuser,” as you may have guessed, isn’t the most technical term and doesn’t have a textbook definition. Typically the name applies to those credit card users who pay close attention to what card gives the most rewards for a particular type of spending, and then adjust their behavior accordingly. This goes beyond, “Oh, I’d better use this card to pay for that pint of Chunky Monkey since it gives me the best rewards for groceries” and into the realm of, “Hey kids, we’re spending Christmas in Omaha so Mom and Dad can charge an inexpensive flight to the right card!”
These high-end users have likely always existed for as long as credit cards have offered rewards programs, but the unprecedented smorgasbord of points, cash back and benefits extended by issuers today prove particularly alluring—both to this subset of spenders and those of us who are a bit more laid-back when it comes to cards. The credit card issuers—the vast majority of which are banks—started ratcheting up the rewards programs on certain cards after the Great Recession cut heavily into the profits they made from the kind of risky, economy-wrecking trades that were the bread and butter for many of these institutions. As banks came to depend more on credit cards to stay in the black, they started competing with each other for the type of customers who had good credit and were willing to make a lot of purchases with the cards.
Spend Money to Make Money
To attract the specific kind of borrowers in demand, credit card issuers began marketing cards promising hefty rewards—but also required the customers to undertake some steep spending in order to qualify, and to do so under a time limit. It’s not unusual for issuers to expect a new card holder to spend thousands of dollars in as little as three months in order to unlock the bonus points. For the issuers, this minimum spending requirement helps guarantee most users signing up for their premium cards have enough income to use the cards often enough to make the points offered worth it.
Combined with the high annual fees—which can easily hit a few hundred dollars just for the privilege of carrying the cards—and it should be clear the potential customers shouldn’t sign up without thinking through the consequences. This holds especially true for any aspiring superusers, who often carry multiple high-end cards, each with its own minimum spending requirement and corresponding rewards.
For people who can plan their expenses in advance—and stick to that plan—the rewards from being a superuser can translate into taking first-class vacations on an economy budget. But given the ever-increasing credit card debt in America, it’s clear many of us aren’t comfortable handling even regular credit card spending. Where you fall on the spectrum determines whether these high-reward credit cards are your passport to the high life or a weight that drags you down into debt. Choose wisely.