I was reading a post over at The Simple Dollar a good while back, and the topic was credit cards (a very contested topic in the PF world, here’s a link to the article if you’re interested). I personally use credit cards for practically everything in order to earn rewards points, and then I pay the amounts in full each month. The result is that I never pay interest, I don’t accumulate debt, and I get some extra money every few months!

Well, in this discussion someone (“Brian”, comment #19 in the post) brought up an interesting view.

No company is giving rewards for free. There is no such thing as a free lunch. Those rewards are only available because they are funded by those people whose backs are breaking under loads of credit card debt. I use to be those people. I can’t bear the thought of profiting from them now. This is at the purest form, a decision of conscience. Personally, I feel a bit hypocritical to preach a debt-free lifestyle and then profit (in the form of rewards) from those I’m preaching to just because they are not there yet. There is certainly temptation to use rewards – it would be nice to get back from the credit card companies since I gave them so much originally, but I just can’t shake the feeling of dirty money.

When I read this the first time I felt a twinge of guilt at first. I think that this thought had actually been in the back of my mind, I’d just never acknowledged it. However, is this really true? Are credit card rewards “dirty money”?

Here’re some of my thoughts… 

Am I really profiting from those who have credit card debt? Or are my rewards just coming from what would have been the CC companies profits? Let’s face it, those companies wouldn’t exist if it wasn’t for the revenue it generates….its easy to forget (for me, at least) that its a business. So no matter what they do, they will always try to have a profit. Before the days of “rewards” points and “cash back” credit cards, the companies just kept that money they were raking in. They are offering it, so is it so bad for me to take it? Even if I don’t take those rewards, others will, and those who are in debt now will still keep paying their fees. (I know, it sounds harsh :-(, but leaving rewards on the table isn’t going to help someone pay off their debt.)

I saw the documentary “Maxed Out” last month, and in it they mention how rates and penalties have skyrocketed in the past decade or so. Do you think this was done to “make up” for the rewards we’re getting paid? Or do you think it has been done to offset the risk that the CC companies are placing themselves in (by lending money to “high-risk” consumers)? I tend to think that its done to offset the risk, but I could be wrong and/or trying to justify my use of my rewards cards. (If you haven’t seen “Maxed Out” yet, do so…its eye-opening, and almost heartbreaking. You can find it on Google Videos or find a link here.)

I think rewards are intended as a lure to encourage people to charge more on their cards, thereby placing them at risk of committing any tiny mistake that could result in fees. While I don’t think this is an entirely honest practice, I don’t necessarily think that people’s debts fund the rewards. You also have to remember that the card companies also make money by charging merchants for each transaction, so even if no one ever carries a balance or pays a fee again, they’ve still made some money. (Actually, realizing this has encouraged me to stop charging every single little amount, especially with small and local businesses.)

Even though I don’t completely agree with Brian’s arguments, the idea is still very interesting to me and got me to see another perspective on the topic.

I’m sure my own arguments can be debunked, but for now, I’m still using my cards.

What are your thoughts on Credit Card rewards? Do you consider it to be “dirty money” as well?