1. You spend more when you use credit cards. The psychological impact of dollar bills leaving your hand is more potent than swiping and signing a piece of paper to complete your purchase.
This occurs because it easily facilitates the deferring of pain to a later date rather than enduring the pain / loss of resources right immediately. In fact a study of credit card use at McDonald’s for example found that people spent 47% more when using credit instead of cash. This is money you could have saved!
2. Most card holders do not pay their credit card bill on time thereby incurring massive interest rates and fees for late payment. Interest rates can range from 18-25% per annum or more. This severely eats aways at your limited resources.
3. Rewards Programmes Aren't Worth It - Think of it this way, banks would not offer these programmes if they were losing money. Frequent flier miles and the like upon further analysis isn't that attractive. For the privilege of being in the programme you must pay a yearly fee. For lower income people especially to accumulate enough points or miles for a significant reward would require years of membership even while you pay yearly fees.
Moreover reward programmes are subject to:
Capacity controls - only limited number of seats on a given flight are allowed for redeemers of miles.
Space availability - often persons, travel agents or insiders book space way in advance leaving other members wanting. Consequently to actually book a flight you may want requires you to book sometimes 3 to 6 months before hand, with penalties if subsequent changes are needed.
Blackout dates - popular traveling dates that are typically not allowed.
4. Credit Cards Will Ultimately Reduce Your Credit Worthiness - Cards are often sold as a good way to increase your credit worthiness in case you would like to take out a loan in the future.The banks therefore want you to borrow money and pay them back regularly to prove that you can borrow and payback money well. Ironically not having a credit card ensures a more favourable financial future. Having a sizeable cache of saving, a steady job and no debt actually makes you more bankable.
5. Rewards encourage further spending / debt. The real reason banks offer these reward programmes is two fold.
a) to encourage spending and debt thereby increasing their interest charges, late fees and penalties
b) to encourage purchases at a particular programme partner. Overseas travel, shopping privileges etc. Ironically all these work against the individual in practicing frugality and perpetuate the cycle of debt.
"Spending More Doesn't Make You Save More"
A Final Word
If you have to use plastic for travel, convenience or ordering items online, you should opt for an international debit card or prepaid card. With that arrangement you can only spend money you have not money you don't have. The emotional feel of your wealth depleting will also be registered more using a debit card or cash.
To increase your wealth you need to either make more money or eliminate things that make you spend more. You do not build wealth with credit cards. Think about it. The credit card industry is a very sophisticated multi-billion dollar industry and you aren't going to beat them at their game.