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- What's up guys, George Camel here. And it's no secret, I'm not a fan of credit cards, but unfortunately, a lot of people are.
According to the Federal Reserve, 8 out of 10 adults have at least one credit card. And one of the big reasons people defend their use of credit cards is for the rewards. In fact, over 90% of money spent on credit cards is on rewards cards. It's one of the top reasons people keep their cards around. The cash back, the airline miles, all of these perks make us feel like we're winning and sticking it to the man, getting all this free stuff from the credit card companies. But have you ever wondered where all those credit card rewards come from?
I mean, someone's paying for that free flight to Little Rock, but who is it?
Spoiler, you're probably not going to feel good about it once you figure it out. But before we jump into that, do me a favor, subscribe to the channel, like this video and share it with all of your friends who love to brag about how they've never paid a dime in interest, but also can't seem to afford their own Netflix account. The math ain't mathin'. Teacher, I need help with my addition, please. Where do I put these parentheses? Now, credit card companies aren't exactly an open book when it comes to which pile of profits your free flights or cash back are taken from.
But the more research I do and the further I delve into the belly of this credit beast, the grosser it gets. Kind of like when you figure out how they make the beef at Taco Bell. Taco Bell's the only place you can still get gas for $2. Now, you might assume that credit card rewards are paid for by interchange fees or swipe fees, which are the fees that retailers pay when they process your car transaction. I mean, surely that cash back isn't coming from people struggling with credit card debt and paying exorbitant amounts of interest, right? Well...
Maybe not. I present to you Exhibit A, Capital One's 2022 earnings report. Total net revenue from credit card products, $22.35 billion. Now let's break that down. Net interest income from credit cards was $16.58 billion.
Net non-interest income from interchange fees was only $4.6 billion. This means that only 20% of their revenue came from interchange fees charged to businesses, while almost 75% came from interest fees, aka from people who aren't paying off their card every month. That hits different, doesn't it?
And don't miss that they made $4.6 billion in a year just from people swiping credit cards to buy things. So it turns out credit card companies, a Capital One, are making most of their money from people who are likely struggling to pay their bills each month based on the fact they're carrying a balance on their credit card. Then they turn around and offer a tiny portion
portion of those profits back to you, so you feel like you beat the system with your free flight to Des Moines and enough cash back for breadsticks at Fong's Pizza. But not enough to afford the $4 upcharge for the gluten-free Fongolian beef pizza, which is surprisingly good. I've had it. I really have had it. I got the receipts to prove it, literally. Actual receipts. It's okay. We believe you.
But this is less about which of Visa's deep pockets the rewards money comes from, and more about the whole reward system itself. And before you go like, well, George, you know, that's just like your opinion, man. Actually, no. We are way beyond opinions at this point, thanks to a 2023 study by the Federal Reserve. They set out to determine exactly who pays for credit card rewards. And the results were alarming, but also not that surprising. Like when Larry from Shipping told you about his collection of Gilligan's Island memorabilia. He looks like the type.
In the report, the Fed said, quote, Wow.
That's pretty wild. Digging even deeper, families with household incomes below $40,000 are less likely to even qualify for a reward card of any type, while being more likely to pay late fees and additional interest. Meanwhile, families making above $100,000 were more likely to have access to reward cards and reward programs and less likely to pay late fees
and interest. So here's what that amounts to. Lower income cardholders paid $4.14 billion in fees, while those with higher incomes raked in $1.26 billion in rewards. But get this, that leaves a gap of $2.88 billion. Where did that go? You guessed it, to the credit card companies. That's how they're able to sponsor the Taylor Swift tour, while we can't even afford a ticket to the Taylor Swift tour. And that is the reason for the teardrops on my guitar.
No one says that. No one ever says that. So let's recap what's going on here. Lower income consumers barely see a dime from rewards programs while shelling out more dimes for the same goods to the tune of $15 billion that well-off credit consumers
get to enjoy. Basically, these credit card rewards programs are like Robinhood in reverse, moving money from lower income credit card users to more wealthy card holders. I told you this wasn't going to feel good. Now, what you do with all this information is up to you, but I want you to know at least who's really paying for your perks and don't get it twisted. It's not from interchange fees. Now, as for me, now that I know how the sausage is made, it makes me thankful that I cut up my credit cards years ago and never looked back.
And that leaves you with a big choice to make. You can be part of the problem or you can opt out completely. You can choose to ditch this toxic system and not only survive without a credit card, but thrive without one. Now look, I'm not on some moral high horse here trying to guilt you into cutting up your cards. I'm 5'6". I couldn't get on a high horse if I tried. Now a pony, maybe. Lil Sebastian, 100%. RIP, homie. Rest in ponny. I just gotta be honest. I don't know what the big deal is.
Get out. But all this information is worth asking yourself. Is this the kind of system you want to be a part of and benefit from? Is this the game you really want to play for the rest of your life, chasing rewards? Now, you might be thinking, well, George, we have no choice. This is how the system works.
Yeah, but nah. The truth is you do have a choice. You can opt out of this particular system simply by using cash and debit cards. And as someone who hasn't had a credit card in over a decade, let me share my honest experience. I found that bucking this credit card system has given me more perks and benefits and rewards than any company ever could.
You see, once I cut up my card, I weirdly built wealth faster with more confidence and peace. I didn't miss the cash back or free flights because I learned how to take control of my money and simply save up and pay for things. Imagine that, rewarding yourself instead of waiting on some blessing from a credit card company.
I was simply able to budget, save up, and pay for flights to see my family at Christmas without worrying whether I had accrued enough airline miles. I was no longer subconsciously tempted to buy more Bloomin' Onions at Outback due to some rotating cash back reward. My budget told me how much I could spend, and using my own money caused me to make better decisions at every turn. And I spent so much less that it negated any rewards I could have ever gotten.
Very impressive. So look, we've got to think bigger than points and rewards and perks. We've got to quit stepping over dollars to pick up pennies. Quit the credit card rat race and start running your own race. One where you achieve your money goals on your terms, not theirs. Now, if you're still hesitant to give up the rewards, I triple dog dare you to take my no credit card challenge. Here's how it works. Step one, stick your credit cards in a block of ice or lock them away somewhere you'll never see them or think about them.
Even delete your credit card info from apps and sites that you frequently use. On our system here, don't let me down. Step two, for the next 30 days, stick to using a debit card or cash for all purchases. It's 30 days, you can do that. Step number three, track your spending with a budgeting tool. I highly recommend and personally use one called EveryDollar and you can find it in the App Store. Step number four, after those 30 days are over,
compare the numbers from your previous credit card days. So here's what you wanna do. See if you spent less, see if you were more intentional, see if you got closer to your financial goals, see if you felt more in control and aware of your money. My hunch is that it will feel more peaceful to not have to think about maximizing all the rewards, that it'll feel a little more real seeing your own money disappear with every purchase. And I won't be surprised if you end up cutting up the cards and never looking back. But again, I'm just inviting you to try it. What's the worst that could happen? You save some money,
Sorry, you're welcome. Thanks for always looking out for me. Now, I'm sure your credit card company will always welcome you back if you so choose. So let me know in the comments if you're willing and brave enough to take this challenge. And if you want to know more about how to live a life without credit, check out my new book called Breaking Free from Broke,
the ultimate guide to more money and less stress. I've got a whole chapter on credit cards, and I show you exactly how disgusting the system is and how you can live without credit once and for all. You can get your copy with the link in the description below. As always, don't forget to like this video, subscribe to the channel, and share this video with all of your friends who cried when Lil Sebastian died, which I assume is all of them, okay? It was perhaps one of the saddest moments in television history. Thanks for watching. We'll see you next time.
