Yahoo Finance Ramit Sethi: Why Playing the ‘Credit Card Points Game’ Isn’t Living a Rich Life
In a world where credit card rewards programs tempt us with points, miles, and cashback, finance expert Ramit Sethi stands out with his unconventional approach. Instead of carrying multiple cards and chasing rewards, he sticks to just two.
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This might sound surprising to many avid credit card users and those simply interested in earning points or cash back on their everyday purchases. Using credit cards regularly or chasing rewards is not wrong, but there may be better strategies for everyone. As a self-made millionaire and author of the popular book “I Will Teach You to Be Rich,” Sethi’s reasoning is both practical and eye-opening.
Only Spend What You Can Afford to Repay Quickly With a Credit Card
One of Sethi’s core principles is straightforward yet sometimes overlooked. You should only use your credit card if you can afford to repay the balance in full each month.
“It may be incredibly convenient to swipe your card at every retailer, but if you don’t pay your bill every month, you’ll end up owing way more than you realize,” he said in a LinkedIn post.
By limiting himself to two credit cards, including a credit card for travel rewards and another offering cash back, Sethi avoids overspending. He emphasizes that the primary purpose of a credit card should be convenience and security, not earning rewards.
Chasing Credit Card Rewards is Time Consuming
Tracking rewards and credit card hacking to maximize points and miles can be very time-consuming. Sethi’s approach is to simplify and free up time and mental energy for other things that matter, like short and long-term financial goals.
Instead of exploring multiple strategies to maximize rewards, he says people can benefit from creating a conscious spending plan that focuses on allocating money to:
Fixed costs
Savings
Investments
Guilt-free spending
Consider the Long-Term Benefits of Investing Instead
Sethi’s strategy to hold fewer credit cards and focus on conscious spending can also benefit your investing goals. He refers to credit card interest as the “invisible quicksand” that holds a lot of people down financially.
“People think, ‘I make $50,000, so why don’t I have $50,000 in my checking?’ but it’s because of the stuff you bought three years ago because it had a shiny interior,” he said on LinkedIn. “The total cost of these purchases (and time to pay them off) is astounding when you pay the minimums!”
He also reminded his LinkedIn followers to factor in the opportunity cost.
“Instead of paying off $10,000 worth of furniture for 30+ years, if you’d invested the same amount and earned 8%, it would’ve turned into about $27,000.”
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This article originally appeared on GOBankingRates.com: Ramit Sethi: Why Playing the ‘Credit Card Points Game’ Isn’t Living a Rich Life
