5% cash back on all purchases through the end of the month… 10% back when you book a vacation on your rewards card… 7.5% back on Taco Bell purchases between 12am and 3am on Saturday mornings… We’ve all heard it, it’s the call of the credit cards: the middle class right of passage.

But what happens when credit card points ruin your life, or at least your finances? This is my story.

Build Your Credit They Said

It all started when I was in college and I was told to build my credit.  If I sign up for this card and that card, I thought, I’ll eventually build up a good credit score, which made sense because you need good credit to buy a car or home.   With this being my reasoning I signed up for every card known to man and amassed over 20 credit cards. That’s right! 20 credit card accounts from every department store and major bank that would give me credit.

$60,000 Credit Limit

After playing nice with the banks they kept raising my credit limit. I had an AMEX credit card, a Chase credit card, a BOA credit card, a Capital One Credit Card, and a Discover card each with a credit limit of $10,000. I could potentially charge $60,000 worth of goods and services on these cards if I needed to.

That’s exactly what I did… well not exactly. Albeit I never maxed out any of these cards I did carry balances on each and every one of those cards. Why? Because of points! One card was for vacations, one card was for restaurants, one card was for concerts (the pre-sale tickets on the AMEX cards are a game changer) and one for the occasional interest free credit transfer.

#Winning With Math

In my mind I thought I was beating the system. I paid off the balances of the cards by the end of the month and just thought of it as the cost of doing business.  Money now is worth more than money later, I would tell myself. Why would I wait to take a vacation next year when I can pay a premium to go on the vacation now?

Plus the points were great and I could book an extra vacation in no time. To say I was “winning” at math was an understatement.

The Oh Sh!# Moment

The moment I realized I wasn’t winning with money was when I calculated how much these points were actually costing me. That $500 plane ticket I got for free actually cost $10,000 in expenses I would have already paid for, so why not put them on a card.   I suddenly realized I was spending way too much money and the only way to win was to stop spending it. So I got to work!

Cutting Up All My Cards

I spent 3 hours calling up every card company and closing all my accounts. They really don’t make it easy and I spent the majority of the call on hold or explaining why I wanted to close my account. If anything I got really good at saying no thank you, to about 20 different people.  I was bombarded with questions: “Are you sure you want to close your account?” “We can give you 10,000 reward points if you stay.”  No. Thank. You.

100 Point Drop in My Credit Score $1,000 Freed Up From My Budget

Apparently, closing every credit card account you have is not the best move for your credit score.  But, cutting out garbage and reoccurring charges on my cards freed up $1,000 a month! That’s right, I was spending $1,000 a month on food, nonsense, subscriptions, this, that and the other.

I started eating healthier because I was cooking my own meals. I cut my car insurance from $230 a month to $300 every 6 months by paying off my car and taking off the collision. I canceled cable because I wasn’t watching TV and I canceled every subscription to throw your money away.com.

Points Aren’t the Answer

“I get points on charges I would have otherwise incurred, it’s smart to have a credit card and pay off the balance every month.” These are lies we tell ourselves everyday and it only took me a minute to do the math and realize my mistake.

I went from spending $200 a week on food to spending $200 a month on food.  Apparently rice, pasta, sweet potatoes, greens, vegetables, and fruit are cheaper than the fast food alternative.

So let’s do the math – 52 weeks x $200 is $10,400 a year. $200 x 12 months is $2,400 a year. 2% cash back at the grocery store is $208 on that $10,400 while 2% cash back on $2,400 is only $48. So I’m losing $160 in points but saving $8,000 by spending less on my food purchases.

That $160 “free Christmas gift” looks a lot worse when you think about the money you spent to earn those points.

Moral of The Story

The moral of the story is you don’t need cheap gimmicks to justify overspending. Credit card companies make billions getting people to spend more and more money at department stores. They get paid by the vendor when consumers use your their cards and they get paid in interest when you carry your balance to the next month.

No millionaire has ever  said that their credit card points are they reason they have become successful, and neither will you.

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