You Can’t Actually Profit by Using Credit Cards. Here’s Why

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Your thinking on credit cards may be costing you money. Find out how to use credit cards the right way. 

Advertising distorts credit cards into life-changing products. In some ways, they are. But it’s easy for new credit card users to assume that credit cards earn you profits.

They don’t. No matter how much cash back they promise, you can’t profit by using credit cards. And if, by some minor miracle, you do earn more than you spend, then you’re in the tiny minority of spenders with astounding timing — and serious self-control.

Skeptical? Curious? Here’s what I mean when I say credit cards can’t actually earn you a profit.

You spend more than you earn

When using credit cards, you almost always spend more than you make.

To profit from a credit card — truly profit — you’d need to earn more than you spend. For example, if you buy a $5 latte (ambitious, I know) and earn a generous $6 back in cash rewards, you’ve earned a $1 profit. Buying the coffee actually made you money.

The reality is closer to this: You buy that thrifty $5 latte and earn $0.05 in rewards. In absolute terms, you’re $4.95 poorer, even though you used a credit card.

But that’s not to say credit cards are useless. Used correctly, credit cards can function as simple, easy-to-spend loans that offer discounts on pretty much everything.

Think of credit card perks as discounts

When you swipe your credit card, you earn perks. These perks are worth a fraction of what you spend — typically a tiny fraction. They’re like discounts, only they’re less straightforward. You may need to spend these perks on specific things, like airline miles.

Cash back credit cards most closely resemble discounts. They earn you cash when you spend. You can put that cash toward your credit card balance, retroactively “discounting” purchases. But what credit cards don’t do is earn you money.

Don’t anticipate earning income with credit cards

Credit cards give you discounts on the dollar; sometimes, you can redeem these discounts as cash. This matters because it affects your spending habits.

For example, say you justify purchasing expensive headphones because “I’ll get cash back.” You may be overspending. Because sure, you could earn a discount via credit card rewards. But at the end of the day, you’re still spending more than you make with the credit card.

I’ve fallen for the trap of deciding to buy something because I get credit card rewards. Cue immediate buyer’s regret. Now, my strategy is to limit swipes to things I would have purchased anyway, regardless of whether I use a credit card. I’m far from perfect, but I’m getting better.

READ MORE: How to Maximize Your Credit Card Rewards

But what about sign-up bonuses?

Some people profit from credit cards by swiping and wiping: signing up for credit cards, snagging the sign-up bonuses, and canceling cards. But these days, credit card companies attach restrictions to sign-up bonuses, making swiping and wiping difficult.

But what if I do everything right?

Let’s say you earn a sign-up bonus, earn rewards, and pay zero fees because you pay off monthly statements in full. Plus, you only spend on essentials: things you’re already planning to buy.

Nicely done. You’re using credit cards exactly right. You could even be said to be making a profit — after all, you’re earning more than you would by using cash. You may not need this article on how to think about credit cards. But no matter your record, the advice below still stands.

Use credit cards to pay for things you’d buy anyway

Credit card perks should not be the primary reason for making a purchase.

Only use credit cards to buy things you’d buy regardless. Otherwise, you may end up scratching your head, wondering why the heck you thought buying a second coffee table was a smart move. The grain is smooth, yes, but you’re still $150 poorer. A mistake? Could be, could be.

There are excellent reasons to use credit cards. To build credit. To pay flexibly. To consolidate loans. You can swipe confidently as long as you follow credit card best practices. Cards may not earn you income, but you can use credit cards to pay smartly and securely.

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