Throwing Money Down the Drain: A Year of Cash vs. Credit Card

Apr 5, 2018

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My mother-in-law runs a fruit stand in my hometown, and she has a saying she trots out whenever I start waxing poetic about travel rewards credit cards: “Nick, cash is king.” Now, I’m a good son-in-law and won’t be outright disrespectful to her, but I fundamentally disagree with this assertion.

Opening and using a credit card (within your means, of course) can be a fantastic way to turn the world into your oyster, traveling on luxurious airlines and staying in high-end hotels for next to nothing.

Today, I’m going to show you just how much money you’re throwing down the drain each year if you find yourself constantly using cash or regularly swiping your debit card. You could be missing out on literally thousands of dollars in rewards annually. Keep reading to see what you’re giving up.

(Side note: Peg, if you are reading this, know that I love you and am simply using your philosophy as a lesson for our readers who want to travel more for less.)

APPLY HERE: Chase Sapphire Preferred Card – 50,000 points after $4,000 spent within the first 3 months

Now, let me introduce you to two friends of mine: we’ll call them Anita and Henry (to protect the innocent). Anita recently got into the world of points and miles and signed up, after consulting me, of course, for the Chase Sapphire Preferred Card. This is one of the best starter cards that we recommend for readers just like Anita, as it provides a large sign-up bonus, lucrative earning rates, valuable redemption options and an array of perks designed to make life easier and less stressful. She’ll be swiping this card for virtually every purchase she makes.

At the complete opposite end of the spectrum is my other friend, Henry. He is a firm believer in Peg’s preaching and pays for everything with cash, debit card or checkbook. He’s never given much thought to a travel rewards credit card and prefers the comfort of these alternate payment methods.

Where will they land at the end of a year? Let’s find out!

First Three Months

Anita immediately dives into using her Sapphire Preferred once it arrives. She’s excited to find out just how widely Chase defines its travel bonus category, as she she finds the following language on the issuer’s FAQ page:

“Merchants in the travel category include airlines, hotels, motels, timeshares, car rental agencies, cruise lines, travel agencies, discount travel sites, campgrounds and operators of passenger trains, buses, taxis, limousines, ferries, toll bridges and highways, and parking lots and garages.”

She even finds out that the private club to which she belongs along with one of her favorite dive bars on the beach here in Florida (a spot that only serves drinks) are both classified as restaurants by Chase and thus able to earn her 2 Ultimate Rewards points per dollar spent.

Henry, on the other hand, makes the exact same purchases as Anita but with one key difference: every one is paid with cash, debit card or a check.

Here’s a breakdown of what they both earn in the first three months:

Purchase Category Amount Anita’s Earnings Henry’s Earnings
Travel $1,200 2,400 points
0 points
Dining $1,000 2,000 points
0 points
Other Purchases $2,500 2,500 points
0 points
Sign-up Bonus N/A 50,000 points
0 points
TOTALS $4,700 56,900 points
0 points

As you can see, Anita is taking home almost $1,200 of value after just three months of holding the Chase Sapphire Preferred Card. Henry? Zip, zero, zilch.

APPLY HERE: Chase Sapphire Preferred – 50,000 points after $4,000 spent within the first 3 months

Next Nine Months

This pattern continues over the next nine months of the year. Anita continues to swipe her card everywhere she can, while Henry continues to pay with other methods. As the summer approaches, both realize that they’re in serious need of a vacation and happen to see a deal alert here at The Points Guy for round-trip flights from Florida to Caribbean for just $191 per person. They both jump on the offer and quickly book prepaid hotel rooms, Anita using her Sapphire Preferred and Henry using his debit card to cover the total bill of $781.

However, when their respective statements arrive with the hotel purchase, Henry notices an interesting addition tacked onto his balance: a foreign transaction fee of $23.43. He is confused, as the purchase price displayed online was in US dollars. Unfortunately, because the transaction was run through a foreign financial institution, it was subject to his bank’s 3% fee for purchases made outside the US. He encounters the same issue each time he swipes his debit card on vacation, with every purchase incurring a 3% fee.

Here’s a breakdown of Anita and Henry’s spending over the next nine months of the year:

Purchase Category Amount Anita’s Earnings Henry’s Earnings
Travel $3,600 7,200 points
0 points
Dining $3,000 6,000 points
0 points
Other Purchases $7,500 7,500 points
0 points
Hotel for Trip $781 1,562 points
0 points
Dining on Trip $600 1,200 points
0 points
Other Purchases on Trip $500 500 points
0 points
TOTALS $15,981 23,692 points
0 points

In addition to earning over $500 worth of additional Ultimate Rewards points by (smartly) using her credit card, Anita has also avoided those dreaded foreign transaction fees which cost Henry over $50 from swiping his debit card.

APPLY HERE: Chase Sapphire Preferred – 50,000 points after $4,000 spent within the first 3 months

Final Numbers

Anita’s one-year anniversary with the Chase Sapphire Preferred has just hit, while Henry has wrapped up another year of following the “cash is king” motto. How did our subjects’ rewards compare to each other? To be blunt…it wasn’t even close:

  • Anita earned $1,698.10 worth of Ultimate Rewards points in her first year of cardmembership. She now has over 80,000 points at her disposal, which can be transferred to numerous partners for luxurious redemptions like the Park Hyatt Zurich or Korean Air first class.
  • Henry not only didn’t earn any points during the year; he actually lost $56.43 by using his debit card on his trip to the Caribbean.

When you put it all together, here’s the reality:

In just one year, Anita came out ahead of Henry by over $1,750.

That’s not an insignificant amount, and it doesn’t even factor in the added perks that cover things going wrong. The Chase Sapphire Preferred Card (and many others like it) provides perks like primary car rental coverage, trip delay insurance, lost baggage protection and purchase protection. Simply by using her credit card instead of paying with cash, Anita added valuable insurance to her purchases, ones that aren’t available through other methods.

Bottom Line

Using cash or a debit card may seem like the easy choice, but when you do so, you’re literally throwing money down the drain. There are no gimmicks here, no hoops through which you need to jump. This is a straight-forward way to simply be smarter about the everyday purchases you make. Don’t be like Peg (and Henry). Don’t leave money on the table. Do the smart thing and open a travel rewards credit card to get the ball rolling. Your future self will thank you.

(And Peg, if you’re still reading this, I love you and look forward to seeing you for Sunday dinner.)

Featured photo by Dugwy/Getty Images

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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