We hear a lot of reasons why people can’t give up their credit cards.

We need it for security.

“Credit cards are much easier than cash.”

“You need a credit card in today’s society.”

“We pay it every month.”

Whereas we could debate each point and make a strong argument as to why they don’t make sense. The only reason that makes me laugh a bit is: “We get the free loyalty points.” In this article, we will really try to separate this reason; take it down and destroy it.

If you’re someone who loves their loyalty points, you might want to look away now. Because by the time we’re done, they won’t mean as much to you anymore.

We’re going to use the example of redeeming your reward points for gift certificates, since gift certificates are the closest thing to getting cash back. In addition, we will choose gift certificates that everyone would be interested in, such as grocery or gasoline gift certificates.

Did you know that the average Australian spends around $14,300 a year on credit cards? So we’ll pretend we’re using an example of the average Australian. Also, while all of these numbers are correct as of 07/06/2011, they may change. We will not use the real names of the bank.

Bank One: You earn one point for every dollar you spend on this bank’s credit card.

You can redeem 11,040 points for a $50 gas coupon. This is equal to 0.004 cents on the dollar. This is not half a hundred per dollar spent. So let’s say, for example, this card spent the average of $14,300, you’ll get a total gas coupon for $64.76 (prorated). Now this is the good news. The bad news is that this card has an annual fee of $89. You have lost $24.24 in the year. In fact, you would have to spend a total of $19,651 just to cover the costs of the $89 fee. After this amount, you would start making money… but very slowly.

Bank Two: It’s very similar. You earn one point for every dollar spent on your Credit Card. But to win a $100 grocery gift card, you need to spend $17,200. Spending the average amount a normal Australian spends, you would earn $83.10 a year for the card. But the annual fee is $89. You are still $6 behind the 8 ball.

Bank Three: Receive one point for every dollar spent on your credit card. A Shopping Center card would cost you 17,950 points. So you would earn $79.66. But there is only one problem; the annual fee is $100. Yes, once again you are in the red to the tune of $20 a year.

So as you can see, none of the reward points really add up. And by the way, this is if we are being sensible with our reward points. In the example, we’re using them for things we’re probably going to buy with cash. But it’s easy to be tempted to use these points for trinkets or things like movie tickets. You lose even more money down the drain.

So every year you lose money thinking you are earning so called “reward points”. But this example assumes that he is paying his bill on time. You won’t incur any interest, or receive any of the other nasty fees and stuff that banks like to hide in your contract.

Also, there have been studies that show that people spend more on purchases when they pay for things with their credit card. This is because you don’t have to pay for the item at that time. It is your brain working on the subconscious level. And guess what, this extra spending has been shown to accelerate when you rack up so-called reward points.

Credit cards are bad in general, but never use the excuse that you only have one because the rewards program is so great. You have just seen the facts! Cut your cards today and get rid of them from your life.