Jun 23, 2006
No Hassle? No Thanks!
There is this guy named Pat Johnson who is thinks that I am The Man. I know he thinks this because I get a letter or two from Pat every week. Only a guy who thinks that I am The Man would bother to write with that frequency. Plus, Pat is looking to give me stuff. Well not stuff as much as free trips. Well not completely free trips, but at least free transportation, so that's something. He would only give free transportation to The Man, right? Right! "Pat, you think I am The Man? I am not The Man, you are The Man!" Pat has offered me 10,000 airline miles for buying stuff. I already buy stuff, so how can I go wrong, right? Plus, if I keep buying stuff, Pat is going to give me 10,000 more miles after only one year of buying stuff, plus 10,0000 after 2 year of buying. Plus I get miles during the year for buying stuff at the rate of 1.25 miles per dollar of stuff. This is a win-win situation...for Pat, who as you may recall, is The Man. You will not be surprised to find out that Pat Johnson is the Director of New Accounts for Capital One. Well, probably not the director because he probably isn't a real person, which takes the luster off the whole The Man thing. You also probably already know that getting the miles means getting the card. And by the card I mean the Capital One No-Hassle card. The problem with using a credit card to accumulate airline miles is that you may spend more for the ticket than you save. According to studies I've seen, people who use a credit card spend about 15% more per transaction than those who pay with cash. Why do you think McDonald's bothers with credit cards? It is because the bills of credit card users are higher than those of cash customers. Think about it. You go into McD's to get a large Coke and some fries. The bill is $3.00 or so. Well, you think, "I can't give them my Capital One No-Hassle card for $3." So you toss in an apple turnover and a Quarter Pounder, with cheese. Now it is a sum worth charging. Try this example. My very good, but probably fictional, friend Pat Johnson is going to give me 1.25 miles for every dollar I spend using his very fine credit card. If I want a $300 airline ticket I have to spend $24000 on my No-Hassle card ($24000 x 1.25). If we accept that I spent 15% of the $24000 solely because I was trying to rack up miles, my $300 ticket costs me 15% of $24000 or $3600. But what if I am 10 times more disciplined in my spending that the average Joe? Even if I spend only 1.5% more, it is still a bad deal. Why not just spend cash and sock away 1.5% of what you spend. You will be way ahead, if you are an average consumer. And that's not all. According to some estimates 70% of free airlines miles go unused anyway. I lost miles with United, Continental and Reno Air, because they quit serving my area. Miles I got from being a frequent flier not using a stupid card, but you see my point. Lastly, there is the matter of the pesky 17.96% interest rate that Capital One is currently charging on upaid balances. I know you are the kind of person that pays in full each month, but 2/3 of card holders don't. So the free trip ain't so free. A survey I read says that the average balance carried by households in the US was $8,000 for lower income families and $10,000 for those making over $50,000 yearly. The interest on a $10,000 balance is $150 per month at 17.96%. That eats up your $300 ticket pretty quickly. So, Mano y Mano Pat old boy, I'm out. No hassles, dude. Tag: Personal Finance Tag: Daily Life