In our previous article, “How a New Credit Card Affects Your Credit History and Credit Score,” we analyzed the impact of a new card through the components of your credit score. But in reality, a new card can affect everyday life too. When we work on a new card’s minimum spending requirement, earn the sign-up bonus, and take advantage of bonus spending categories, we often fall into the bank’s trap without even noticing. Credit cards may look like they’re helping us save money, but they can quietly drain our wallets a dollar at a time. Today, let’s talk about the side effects of getting a new credit card.

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Minimum spending requirement = overspending + stress?

As everyone knows, a credit card sign-up bonus is not just handed to you for free. Usually, you need to spend a certain amount within three months before you can earn it. In general, the bigger the sign-up bonus, the higher the spending requirement. For example,

For most people who can only meet these requirements through everyday spending, getting a new card means the start of a battle. You’re constantly thinking about how to spend that much money within three months. And before you know it, purchases you could have lived without suddenly get moved up on the schedule. “I’ll have to buy this sooner or later anyway, so I might as well buy it now to help meet the requirement!” Think about it: even if you only make purchases for the sign-up bonus, how many of them are truly necessary, and how many were basically “induced” spending?

And that’s not all. That three-month spending requirement keeps hovering in the back of your mind. Some people plan carefully, yet forget that the annual fee usually does not count toward the minimum spending requirement. Others procrastinate until the last few days, then rush to ask whether certain purchases will post in time to count. And the more cards you open at once, the more carefully you have to divide up your spending so you don’t miss one requirement while focusing on another. In short: it’s stressful.

Sign-up bonus = flashy but impractical, or just an excuse for luxury?

After being bombarded by blogs and forums, I’m sure many people now see points-and-miles credit cards in a completely different light.

  • Breaking news! Chase Sapphire Preferred (CSP) has a huge offer: a 55,000-point sign-up bonus! Transfer to UA miles and it’s worth $880! Transfer to Hyatt points and you can get even more value!
  • Breaking news! Citi AAdvantage Platinum has a huge offer: a 50,000-mile sign-up bonus plus another 5,000 miles, enough for a one-way business class ticket between China and the U.S.!
  • ...

Overnight, everyone starts chasing points-and-miles cards, swearing that any card with a sign-up bonus worth less than $500 is beneath consideration. Those shiny 50,000 points or miles are supposedly worth more than $800, and if you redeem for business class, each point is worth 5 cents!

The thing is, applying for a card and earning a sign-up bonus isn’t actually that hard. But even if you get all those miles, do you know how to use them? Maybe in the end, your $800 worth of Membership Rewards only gets redeemed for $500 worth of McDonald’s. Or maybe you’re thrilled while earning miles, but when it’s finally time to redeem them, you’re overwhelmed and posting everywhere: How do I book xx award ticket? Why can’t I find xx award availability? How did I work so hard to earn all these miles and still not even get a nonstop flight? But asking people to first understand how miles work, learn the quirks of each points program, and then decide which card to apply for? That’s easier said than done. When people see a great deal, they get excited. A historic high offer feels impossible to pass up.

There’s also another type of credit card that promises a few free hotel nights as a sign-up bonus. People immediately list outrageously expensive hotels and get thrilled that those two free nights can be worth $1,000. It feels better than free money falling from the sky. But what people don’t realize is that these carefully matched travel plans often eat away at the hard-earned cash in your wallet. Do you really need to spend two wonderful nights at a luxury hotel? Maybe yes, maybe no. But if you don’t redeem at a luxury hotel, how else are you going to maximize the value of the sign-up bonus?

Bonus spending categories / AMEX Offers = changing your spending habits?

We know that some credit cards offer 6% back at supermarkets or 4.5x points in certain categories, but those supermarket categories often do not include Walmart, Target, or Costco. So have you gradually stopped shopping at those big-box stores and switched to local supermarkets just to earn more rewards? Have you noticed that even after a 5% or even 10% discount at a local supermarket, the same pack of meat can still cost more than it does at Walmart? But that’s okay, because what we want is to watch our points balance keep climbing. Bonus rewards just feel good.

Then the holidays come around, and all kinds of AMEX Offers start popping up. Newer merchants like jet.com gradually enter the picture. Neiman Marcus 250-50, and just so happens there’s something you want to buy! Your wallet may be crying, but with the AMEX Offer you’re basically getting it at 20% off, so how could you possibly pass that up?

Summary

A new credit card may be only a kettle,

while perhaps many of the seeds were already buried in our hearts.