Just like any tool can be used for good or for evil, we have been trying to use credit cards for the good they can do, while avoiding the evils that they produce when wielded unwisely. Because of this "year of want," with a new baby, a new house, and just starting a new job, it looks like we might be paying a finance charge or two this year, unfortunately. So I decided to take a look at our credit card rewards/penalties spreadsheet (yes, another facet of the Cannon Family Budget) to weight the pros/cons of continuing to use credit cards rather than switching to cash/checks to avoid future finance charges. Based on the data I have thus far, here's what I found.Since I got my first rewards credit card in July of 2004, I had earned $371.30 from my credit card compared to $13.48 I had paid in fees over the 3 1/2 year time period.
Add in what we've earned since we got a rewards card for Mitzi in July of 2006 and our total earnings from the credit card company increase to $499.59 compared to $17.00 in fees.
The bottom line is that we've earned a net income of about $480 by using our rewards credit cards wisely over the last 3 1/2 years.
A couple of limitations to this. First, a couple of big finance charges/late fees can offset that hard-earned cash real fast! Second, I have gotten a couple of big finance charges/late fees - one of them to the tune of $103, which fortunately I was able to talk my way out of due to my willingness to call and my good payment history. This is also something to keep in mind - I have gotten several charges refunded simply because I called and complained (often with good reason). Try it. Third, according to some research (and my buddy Royce), people who use credit cards compared to cash spend 15% more on average, so keep that in mind and try to offset this with prudent budgeting. Fourth, like the boundless power of the atom, when used wisely, credit cards can be incredibly useful; but when used without respect, discipline, and care, you can have a monumental disaster on your hands. Boo yah!
3 comments:
Scott, seriously, this is why you will be wealthy one day. It reminds me of the time Pres. Nelson told us he bought an entire rooms-worth of diapers. Take that as a compliment.
Do you mind me asking which credit card you use? We don't get rewards like that.
-Sarah
Me, too. I want to know which credit cards you've used for rewards.
My first card was the best. I got a Citi Dividends Student MasterCard. It had a 5% cash-back rebate on gas/groceries/drugstores, and 1% on everything else. They called me up one day in Oct. 2006 and said that this rate was being dropped from 5% to 2% because "they could only give so many people the 5% at a time." What a rip. Anyway, I soaked that 5% rate while I could, but now the rewards come more slowly.
We also have a Costco AmEx that gives us 3% on eating out, 2% on travel, and 1% on everything else. We always try to use that to pay when we eat out. The hitch with this is that you only get a rebate check once a year in February.
The main thing is that we go for cash-reward only cards. I don't even mess with those "points" programs that only let you use your rewards to buy random goods from retailers of their choosing. We also try to put everything we can on our cards - especially big purchases (but only if we have the cash on hand, of course). We've set up some of our bills to be paid with our credit card so that gets us automatic cash back. I wouldn't mind a SkyMiles type card, but haven't gotten into that yet.
Remember, doing this is only viable if you don't offset or counterbalance your rewards with fees/fines. Good luck! To find a card you like, go to www.creditcards.com - it is very helpful at screening cards based on your desired criteria.
Scott
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