The Infinite Monthly Payment Loop


This is how monthly payments look in space.

I’ve been told there was once a time where people actually paid for things up front and in full.  Cars, houses, education and such were paid for with cash and then utilized to the best of the person’s ability.  A person or persons simply saved up the money required for a car, for example, paid for it in cash and drove it off the lot, knowing that it is now theirs to take care of with no extra payments to speak of.  I don’t know if such a time ever existed or will ever exist again, but it does sound nice.

If there is one phenomenon that can be pinpointed as the sole reason of financial hardship for so many people nowadays, it is the ability to get whatever you want by paying for it monthly.  This is the prime reason that people are getting poorer and the banks are getting richer.  It seems there is always a monthly payment due for so many things, and new ones seem to crop up every few years.

Let’s take the ultimate never ending monthly payment as an example, the home mortgage.  Playing with some mortgage calculators, I wanted to find how much would be spent on a $200,000 home if the buyer had a 20% down payment and took out a 30 year loan at 4%.  A 20% down payment is the industry standard for a “recommended” down payment amount and a 4% rate on a 30 year loan is considered great in any time period.  This savvy home buyer thinks he got a deal, and in some respects he certainly did.  But according to the calculations, if he makes his minimum mortgage payments on time every month, he will end up having paid $349,991.21 at the end of the 30 year loan.  So he will end up having paid almost $150K extra for a 200K house.  Doesn’t sound like a great deal to me.

Now there are things to take into consideration such as the mortgage interest deduction and appreciation of the home, but those are very variable as not everyone always qualifies for the interest deduction and the market can go up and down.  Many people don’t even save enough for a 20% down payment and buy more house than they need, so the amount of money paid at the end of the loan can be much higher.  The bottom line is, it is in the bank’s best interest to get us caught in the seemingly infinite loop of monthly payments.  They get a steady stream of income from the home owner, while getting much richer in the process because of interest payments.  The buyer gets a house to live in, which is nice, and may or may not make some money in the process depending on market conditions.

This is not only limited to houses anymore.  Cars loans are a MAJOR profit center for banks.  They provide a continuous stream of income for loans that are 3-5 years long, which is the amount of time that many Americans trade in their cards anyway.  And since most Americans have multiple cars, you can see why the banks and the auto industry love car loans.  The other thing they love about car loans:  the buyer isn’t going to be making any money off of the car.  Houses can and usually do appreciate somewhat.  Cars almost always depreciate in value.  If there is a more one sided transaction out there that everybody does other than the car loan, I would love to hear it.

The monthly payment loop is not only firmly entrenched in the home and auto industry, but in consumer products as well.  How often do you see appliances, another guaranteed depreciating product, being advertised as affordable because of no or low interest payments for the first year?  You can get pretty much any type of appliance or electronic on a monthly payment plan, especially at those God awful places like Rent a Center, where everything is advertised only in monthly payments.  These products provide no long term financial benefit for the buyer, who usually trades them in for the latest model after a few years anyway.

And the ultimate monthly payment cycle?  Credit card debt.  If the store is not offering a product on a monthly payment plan, thank goodness Visa is giving you the option.  Just charge the amount of the appliance in full, and make monthly payments on it until it’s paid off.  Most credit cards have very high interest rates, some in the area of 20%.  Can’t think of a worse deal.  I write about how I love using credit cards and getting rewards, but this is NOT the way to be using them.  This is a way to get into financial trouble in a hurry.

Thanks to savvy marketing and unending greed, most people in our society are wired to think about money in terms of monthly payments.  If you can swing the monthly payment on the house, two cars and the new dishwasher, that means you can afford it, right?  Maybe.  But you are doing your current and future self a huge disservice by having your money tied up in products like these.  Imagine not having a $300 car payment and instead investing that money in your company’s 401k or using it to pay off debt?  That is the way to financial freedom.  It’s tough to get out of the infinite monthly payment loop, but doing so will get your finances back on track.


Why you need to collect Points and Miles

I’ve talked before about some great rewards you can get from credit card spending.  I’ve also talked about the importance of having a great credit score and the benefits one can reap over a lifetime just by having a great score.  With these two things in mind, the next step is to maximize your credit card rewards.  And I mean MAXIMIZE.  As in sign up for a few cards every 3-4 months , also known as a churn.  Contrary to popular belief, this does not hurt your credit score much, and actually will make it more solid in the long run as you will have higher and higher credit limits and lower and lower credit utilization ratios.  So there should be no fear of getting the most credit card rewards possible.

But if you are the type who racks up credit card purchases like there’s no tomorrow, forgets to pay on time here and there or is okay with carrying interest month to month, don’t even think about getting credit card rewards.  Actually, you should re-think your life and your use of credit cards at all.  They are a tool, but only in the hands of those who know how to wield it.  Willingly and knowingly carrying a credit card balance is one of the most foolhardy things one can do financially.  If you are one of those people, maximizing rewards is not for you.  If you try it, the only thing you will be maximizing will be your pain.

Now that we got THOSE people out of the way, let me show you a few reasons why getting lots of credit card rewards is awesome.  The first thing that comes to mind is that miles and points are TAX FREE.  There apparently is no way for the IRS to quantify how much a “point” is worth, especially since they can be worth different amounts in different programs.  And let’s hope it stays this way.  We work hard for our money, and being citizens of a country, we have to pay taxes.  This is reasonable and necessary as taxes allow the maintenance of the roads we drive on and the libraries we frequent.  But if there is a legal way to avoid taxes, I’m all for it.  Miles used effectively, for example, can turn a first class ticket normally costing $5,000 into a $50 out of your pocket expense to cover the taxes.  That’s $4,500 saved.  Tax free.  Now granted, most people don’t buy $5,000 plane tickets, but money saved is money saved.  You can compare that $50 out of pocket expense to a $300 coach ticket you’d probably buy.  That’s still a $250 savings.  But in a lot more style sitting in first class.

A common complaint about collecting miles is that people say they don’t travel much and there’s no need to collect so many miles.  In my experience, everyone has to travel somewhere at some point in their lives.  Be it for a wedding, funeral, visiting family or for business, everyone gets on a plane at some point in their lives.  And having miles ready for that day can be very lucrative.  From a single credit card sign up, a person can easily get a round trip domestic ticket to anywhere in the country along with no checked bag fees.  That is incredible piece of mind.  Also, some of the more flexible programs such as Chase Ultimate Rewards and AMEX Membership Rewards allow you to redeem points for cash or gift cards.  So if you know you’re not going to be flying anywhere soon, just trade those points for some cold hard (tax free) cash which you can use to pay down your debt or bolster your savings.  Did I mention it’s tax free?

Another reason to get into the world of credit card reward maximization?  It will help you spend less.  Yes, you heard that right.  The common refrain from credit card haters is that they make you spend more that if you use cash.  In my experience, that’s only if you are not conscious of your spending.  As long as you have a budget or  some type of spending plan and realize that getting 5% cash back is peanuts compared to not buying the thing at all, you will not spend more with a credit card.  On the contrary, I have found times where I want to spend less, just to maximize rewards.  If I see something that catches my eye in the mall, I don’t buy it right away because I know i won’t get maximum cash back like that.  I can use an online shopping portal like the Ultimate Rewards Mall or Bigcrumbs.  I’ll probably forget to check it when I get home, or I’ll realize it’s not worth the effort so I just won’t buy it.  If you look at every purchase you make in the frame of maximizing credit card rewards, you will want to buy less things.

And finally, if those reasons didn’t sway you, here’s the real reason you should get in on the credit card rewards game:  it’s fun.  It’s fun finding an awesome credit card sign up bonus, being approved for the card, and knowing it will cover a fun trip for you and your family.  It’s fun to find ways to maximize your cash back, such as buying gift cards at grocery stores, to take full advantage of the many great grocery cash back cards out there.  And it’s fun to kind of stick it to the big credit card companies, using their rewards to produce things of value for you which you might not have gotten otherwise.  It’s not exactly Fight Club, but it feels good to use their money to enrich ourselves for a change.

What maximizing rewards will eventually cause...I think

What maximizing rewards will eventually cause…I think


An Essential Rewards Credit Card

I love the world of credit card rewards.  I hate the world of credit card debt.  Guess which world the credit card companies want us to live in?  Many people ask which is the “best” reward card?  That is an inherently difficult question because it depends on what your goal is.  If your goal is domestic travel, there is a certain class of cards which would be best.  If your goal is international travel, there is another group of cards to consider.  And if your goal is cash back, there is a whole other set of cards to look into.

Well, I think I found the rewards card that is the “best”.  Or close to it anyway.  I have had it for a couple of months and it has really made the process of choosing the right credit card from my wallet a little easier.  The card I speak of is the Fidelity Investment Rewards Card.  It is an American Express branded card but FIA Card Services sends you the bill.

The "best" rewards card you can find

The “best” rewards card you can find

Here are the main advantages of this card:

2% cash back on EVERYTHING.  That’s right.  Any purchase you can think of.  Especially useful for those times where no other rewards credit card seems appropriate.  Paying a co-pay at a doctor’s office.  Paying the ticket for the parking garage.  Donating to a charity of your choice online.  You will not find any card that gives you 2% back on every single purchase that doesn’t have an annual fee.  Which brings me to the next perk.

No annual fee.  If you want one go to card where you won’t have to worry about any fees, this would be the one.  There are some travel cards which give 2% cash back, but it’s only for certain travel purchases and there is usually an annual fee involved.  There are other no annual fee cash back cards that have 5% categories, but they are limited and only last for a few months.  This card gives you the assurance of getting 2% back on everything and not having to worry about a fee.  Priceless.

Unlimited rewards.  There is no cap or time limit on any rewards.  If your normal spend is $10,000 a month (which is a lot but there are ways to make it happen even if you don’t ACTUALLY spend that much), you will get a $200 reward per month.  That’s $2,400 for the year.  Tax free and yours to spend as you wish.  Very tough to beat that.

Sign up bonus:  On 3/19/14, I came across a sign up bonus offer for this card.  It’s a $75 bonus after spending $500 within 60 days of opening the account.  Not the greatest sign up bonus, but better than nothing.

There are some hoops to jump through to get this card, but it should only take a few steps to get through them.  To get this card, you MUST have an associated account with Fidelity.  This includes an IRA, 529 plan or a brokerage account to buy and sell stocks and mutual funds.  Seems like a lot of work to get a credit card right?  It used to be, until Fidelity allowed you to simply open a checking account with them.  Their checking account is called the Cash Management Account, and opening one allows you to sign up for their amazing Investment Rewards credit card.  Pretty simple process and actually a pretty good checking account.  No ATM fees and unlimited check writing.  I test drove it but ultimately didn’t go with it because their website is a little clunky and I already had similar features with my current checking account.

In any case, signing up for their checking account gives you the ability to apply for the credit card.  Once approved, you start using it and when you hit enough rewards, you can transfer it directly into the checking account.  You can transfer rewards in increments of $50.  From there you can use it to do anything.  Get cash from an ATM.  Pay part of your credit card bill.  Or transfer it to your regular checking account.  It’s a pretty simple process.

Besides jumping through a couple of hoops, the only other downside I can think of with this card is that it’s an American Express branded card.  Not all businesses care about their customers enough to accept AMEX (come on, I know the fees are higher than Visa but a lot of people use American Express), so it’s good to have a backup Visa or Mastercard just in case.

I love chasing credit card bonuses, but when I’m in between getting credit card bonuses, it’s really nice to have a card  that consistently nets you 2% on everything.  I can’t see myself not having this card in my wallet for any reason.

(I’m not making anything from Fidelity for promoting this card.  It’s just my honest recommendation.)



Would you ever use a Balance Transfer?

When it comes to credit card marketing, there are some things I just never pay attention to.  One is the APR, which is the comically high interest rate you pay on the part of your balance not paid in full by the due date.  I’ve seen rates from 10, 20 to even 30 percent on certain cards.  Those are scary numbers, but I’m not scared of them.  That’s because I make it a priority to always pay my credit card balance in full.  Getting into credit card debt is one of the toughest holes to dig out of because of the aforementioned crazy high interest rates.  Everyone should avoid by any means necessary.

Another thing I don’t worry about?  Late fees.  Some companies even market cards with certain benefits like “low late fees” or “you won’t pay your first late fee.”  These marketing ploys don’t work on people like me who pay off their credit card balance as early as possible.  Adding an extra $30 to your bill is not what smart people do.  Paying your credit card bill in full and on time is one of the best things you can do for your credit score.  If you make a big purchase that takes a decent amount of your credit limit, it may even be worth it to make an early payment so your credit utilization ratio stays at a good level.

Another thing I don’t pay attention to is balance transfers.  They allow you to move your credit card debt from one card to another, with the idea being you’re moving debt from a high interest card to one with a low interest, or temporarily no interest card.  This allows you to save some money on interest payments.  The catch is that you must pay off the debt in the specified amount of time, usually around a year or so.  If it takes longer, then you get hit with a REALLY high interest rate.  Sneaky credit card companies.  I never really had a need for this because I don’t have credit card debt.  But on a fateful morning about one year ago, I did a balance transfer.  And here’s why.

I was calling to activate a new credit card with a sweet and easy to get sign up bonus.  My favorite kind.  The credit card rep was going through his usual money making pitches: credit monitoring service?  NO.  PIN for ATM access?  NO.  Balnace transfer to pay off credit card debt or student loans?  NO….wait what?  Student loans?  I love paying those off early.  I asked for more information and he informed me that they would deposit a certain amount of money into my bank account which would go on my credit card.  I could then use that money in my bank account to pay my student loan bill (or whatever I wanted technically but I figured paying off a student loan would be more responsible).

The terms of the balance transfer were I would pay no interest for a year (I did pay a 3% fee for the transfer of money so it’s essentially a loan with a 3% interest rate).  So I had a year to pay back this amount or face hefty interest rates.  Luckily, I had a student loan which I could easily pay off in a year that had an interest rate of 8.5%.  So the bank was giving me a loan with a 3% rate to pay off a loan with an 8.5% rate.  And I had a year to pay them back.  I pulled the trigger and happily got rid of that student loan and paid the bank back in 6 months.  I saved a couple of hundred dollars in interest payments in the process.

This is probably the only scenario I could imagine myself doing a balance transfer.  Since the interest rates of the rest of my student loans are pretty manageable, I don’t see myself doing this again.  Also, life can intervene in your ability to pay off a large balance in a year, so there is a little bit of risk involved.  With a freshly minted 1 year old boy, that’s a risk I would rather not take.  I really don’t pay attention to balance transfer offers anymore but for people with high interest debt with relatively low balances, they might be an option.

Leave a comment below about your experience with balance transfers or why you would never go near one.


The 3 Best Cash Back Credit Cards

I really do love credit cards.  That’s because I avoid credit card debt like the plague and I like to use rewards to the max.  A recent trend I’ve been noticing is that many reward programs (especially hotel and airline programs) are devaluing their rewards.  Meaning, they are making it tougher to get certain rewards by either getting rid of them completely or increasing the amount of points you need to get them.  Here is a post about the recent devaluation by United Airlines, which will affect travelers trying to travel abroad in first class.

These devaluations can be depressing, especially for those who have been collecting points from a certain program for a long time.  Obviously, these companies are trying to save/make more money by making it harder for you and me to reach certain rewards.  This means we would have to spend more to get the reward we want.  This seems to be the trend as the economy is making companies buckle down and save money any way they can.  This does not mean the death of rewards programs by any means, just that we have to be a little more judicious in how we rack up points.

With reward programs not being as valuable as before, cash back cards seem a lot more appealing.  It is the simplest type of reward with hardly any hoops to jump through.  And it seems they might be capitalizing on that as there are some great cash back cards out there with nice sign up bonuses.  I have some experience using all of the cards I’ve listed, and they all have their strong points.  Cash back offers are always changing, but these are what I think are the best offers as of December 2013.  None of these links are affiliate links, so you can use them or search on your own and it won’t affect me the least bit.

Here are my top 3 cash back card offers:

1.  Chase Freedom:  Chase Freedom is one of my favorite cards, as it is linked with Chase Ultimate Rewards which can give you cash back as well as gift cards and travel.  It has a base cash back rate of 1%.  Here are some of the cool features of the Freedom:

-$200 sign up bonus when you spend $500 in the first 3 months.  This is for a limited time only as the usual sign up bonus is $100.

-5% cash back on different categories each quarter.  They have some pretty good categories on stuff most people already spend money on such as gas, restaurants, Starbucks and  They usually send you an email before each quarter and you just have to do one click to activate that quarter’s bonus.  Not that you should, but you can spend a max of $1,500 on the 5% categories each quarter.

-No annual fee

-0% intro APR on the first 15 billing cycles.  Helpful if you have a big purchase coming up and you don’t want to go into credit card debt.  Just remember to pay it off in full because once the promo rate is over, the interest rate on this card (and most reward cards) is very high.

2.  Discover ItJust signed up for this card recently and it has some really good perks.  It is my first Discover card EVER.  Discover doesn’t usually have great reward cards, but the It is definitely an exception.  It has a base cash back rate of 1%, including some of the following features:

-Maximum $150 sign up bonus when you spend $750 in 3 months.  You won’t find this bonus by going straight to Discover’s site.  Just Google around and you can find affiliate offers with $100 or $150 cash back.  The bonus is what made me sign up for the card.

-Similar to Freedom, has rotating 5% cash back categories that need to be activated.  It also has a similar max of $1,500 per quarter.  There are some pretty good categories like online stores, gas, restaurants and movie theaters.

-No annual fee

-0% into APR for the first 14 months.

3.  BankAmericard Priveleges with Cash Rewards:  This card kind of goes under the radar, but it has some pretty good benefits.  I had to do some digging on the Bank of America website just to find it.  It has a base rate of 1% cash back as usual.  It also has some other cool perks:

-$100 bonus after making $500 in purchases in the first 3 months.

-2% cash back at grocery stores and 3% cash back at gas stations.  There is a $1,500 max per quarter on these categories.

-A cool feature on this card is that if you have your rewards deposited in your Bank of America account, you receive a 50% bonus.  So if you have $40 in rewards that you deposit into your account, you will get a $20 bonus on top of that.  Not bad at all.  If you decide to redeem as a check or statement credit, you don’t get the 50% bonus.

-The major drawback of this card is the $75 annual fee.  It is waived in the first year, but after that you have to pay $75 or have at least $50,000 in investment accounts with Merrill Lynch.  If you don’t already have that much with ML, not sure this card will be worth it after the first year.

Honorable mention:  Capital One Quicksilver:  This is the ultimate no nonsense cash back card.  No annual fee, no rotating categories.  Just plain 1.5% cash back.  It also has a $100 bonus if you spend $500 in 3 months, which is what I got it for.  For those people who just want to use a card for cash back and not think about it.

There you have it.  My favorite cash back cards at the moment.  Most reward cards require a pretty clean credit report and a decent credit score.  And as always, remember not to get into debt with these.  The interest rates are crazy high.  Have fun getting cash back!


Financial Commandment #3: Avoid credit card debt

Put these on ice if you are in debt!

Put these on ice if you are in debt!

In the third installment of the sacred Financial Commandments, we talk about the biggest thing to avoid.  This is in contrast to the more proactive Financial Commandment we mentioned previously, Pay Yourself First.  Just like a winning football team needs a good offense along with a good defense, a great financial plan needs to proactively go out there and make you more money, while at the same time preventing big money blunders from ever happening.  Commandment #3 is to avoid one of the biggest financial holes you can get yourself into:  credit card debt.

It is known that not ALL debt is bad.  Student loans can help you get an education which you can hopefully leverage into greater income potential for the rest of your life.  A home mortgage will allow you to own a home that hopefully appreciates in value when you sell.  If not at least it gives a roof over your head.  A car loan, though tied to a product which will almost always depreciate in value, lets you drive a car, which you can use to get to work or wherever you would like to go.  These types of debt are not always the best to get into, but AT LEAST you have something of potential value to show for it.  This is known as leverage, as you can use your debt to potentially multiply your money in the future.  Interest rates on these types of loans are usually pretty manageable as well.

Credit card debt is a whole other story.  You almost never have any leverage buying consumer goods with your card (unless you can find a black market for Snuggies).  So the chance of you making some money off of your debt is not very good.  Credit card interest rates are also very high compared to most other forms of debt, ranging from anywhere around 10 to 30%!  If you have a revolving balance, meaning you don’t pay off your balance in full and always have some debt incurring interest, you are really getting hosed.  You are probably paying a very high amount in interest payments, payments that were easily avoidable and with money that could be used for much better purposes.

If you do find yourself in deep credit card debt, start praying to your Lord of choice for help.  When you’re done, it’s really time to buckle down and pay off the debt.  Another reason credit card debt is so dangerous is that it’s so easy to accumulate.  Credit cards are widely available and banks love giving them out because they are a very profitable item for them.  So if you do find yourself in debt, the absolute first step is to stop using the cards!  Sounds simple enough but it can be hard to implement for some people.

After forbidding yourself from using your cards for a while, a credit card repayment plan is very simple:  Use cash only, pay the minimum on all of your balances, and pay whatever you can on your balance with the highest interest rate.  Once that balance is gone, move to the next highest interest rate.  Rinse, lather and repeat.  This is the most efficient way to pay back your debt, despite what those “credit counseling” companies say.  They will essentially set up a similar plan for you, and charge you for it.  Bypass the middle man and follow the formula above to pay off credit cards quickly.


3 ways to max out your credit cards

Almost everyone in the civilized world has had a credit card at one time or another.  A credit card can be a powerful tool.  It is essentially a 30-day loan from the credit card company (Visa, Mastercard, American Express etc.) with a certain limit to buy whatever you want.  Responsible users use credit cards to pay bills and buy things they already use such as gas and groceries, and then pay the bill in full every month.  Irresponsible users think of a credit card as an invitation to a shopping spree and buy stuff until they reach the credit  limit.

This article isn’t about that type of maxing out.  It’s about maxing out RESPONSIBLY.  That is, maximizing your credit card use to get the most rewards as possible.  It is actually the opposite of the traditional way of maxing out a card.  This type of maxing out is only done by responsible credit card holders who know that it is vitally important to avoid credit card debt at all costs, and also know how to get the best rewards quickly.  Here are the top 3 ways to fully unlock the reward potential of your reward credit cards:

1.  Sign up bonuses

Any reward credit card worth its salt will give you a bonus when opening a new account.  For example, as of this writing the CashRewards card from bank of America gives a sign up bonus of $100 after you spend $500 in 90 days.  Between money spent on gas, groceries, phone bills etc., spending $500 in 90 days is not that hard for most people.  Doing it with this card will give you a $100 bonus to be used on anything.  It’s usually best spent as a statement credit, essentially saving you 20% on a $500 credit card bill.

This is a nice little bonus, but in the grand scheme of things it’s not too much.  The fun starts when you are able to sign up for multiple rewards cards which offer bonuses.  Doing this can net you a couple of hundred dollars easily.  While you can usually only receive a bonus the first time you sign up for a card, there are always new bonus offers coming out so this can be a nice little perpetual bonus machine.  Obviously, it’s important to remember to get only enough cards where you can comfortably afford the spending limits.  Otherwise you potentially force yourself to buy things you never intended.  Also, signing up for multiple cards doesn’t really hurt your credit score in the long run.  This is because paying your bills on time is the most important factor in having a good credit score according to myFICO.

2.  Category bonuses

There are all types of rewards cards offering different types of category bonuses.  What that means is that you get extra points back for buying stuff in certain categories.  For example, the American Express Blue Cash Preferred offers 6% cash back on groceries and 3% cash back on gas.  This is a great card if gas and groceries comprise a large amount of your spending.  Having these category bonuses is nice because they give you an additional bonus on top of the standard 1%.  If you have cards with bonuses for things you already pay for such groceries, gas, eating out, cable bills etc., you can really maximize the points you receive just by spending money on the things you already buy.  There are many different cash back and points cards out there for different categories, so it definitely pays to look around and find the one that suits you.

3.  Use cards for everything

No, this doesn’t mean buy everything in sight with your cards.  It just means wherever you can use your card, use it!  There’s no need to use actual cash unless they don’t accept credit cards or they charge a “convenience” fee for using one (this is one of my biggest pet peeves.)  Using a card for everything you buy has two main advantages.  One, it maximizes the number of points that you receive.  Especially good when spending with sign up or category bonuses.  Two, putting all of your purchases makes it really easy to budget and see where you exactly are spending your money.  It takes a special kind of person to enjoy carrying around wads of old crumpled receipts in their pockets all day.  A credit card makes it easy to avoid this, as you can just get online or even on your phone to check on your transactions.

Some say that having a credit card can make you spend more than usual.  But if you use them responsibly, it can be the exact opposite and actually help you budget.  Maximizing your credit card use with sign up bonuses and category bonuses can give you a nice perpetual bonus.


Which reward is right for you?

Each and every credit card company wants your business, and they will do anything to get it.  Offering credit card rewards is one way of doing this.  Getting rewards for what you spend on credit cards was almost unheard of even a few decades ago.  The rewards industry has really been booming as the big credit card organizations partner with many different retailers and companies in order to entice you to do business with them.  You can be sure they’re not offering rewards out of the goodness of their hearts.  They offer rewards because it is making them more money than ever before.  It is important to recognize this before we start delving into the world of credit card cards

Unfortunately, many people get a rewards credit card and proceed to spend more than they would if they did not have a rewards credit card.  The credit card companies love these customers because they only have to give up a few dollars in rewards here and there for the thousands of dollars this customer is giving them.  You don’t want to be this customer.  If you use the appropriate rewards card and make sure not to increase your usual spending, having a rewards credit card can be a nice little bonus on top of your regular spending.  Here are some of the more popular rewards credit card categories that are available nowadays:

Cash back:  The easiest form of rewards with no hoops to jump through for the most part.  Sometimes you just have to decide between getting a check in the mail or a credit on your next statement.  Most rewards credit cards will offer 1% cash back on your purchases.  That means if you spend $1000 for the month, you will get $10 back.  Not a huge payout by any means but better than nothing.  The key with cash back rewards is to find cards with promotional offers or increased cash back for certain categories.  For example there are some cards that offer 3% cash back for gas station purchases or 2% for groceries.  If you can find a card with an increased cash back level in a category you already spend a lot in, that can lead to even greater rewards.

Gift cards:  This is a pretty straightforward reward redemption also.  Most of the big credit card companies like Chase or American Express offer gift cards as a redemption option for some of their cards.  It’s usually at the same 1% rate or more depending on if you find a category bonus.  If there is a restaurant or store you frequent a lot, this can be a good option.  The issue with this option is that you may get gift cards for places you don’t really visit often.  If you do that, you are probably better off just getting a cash back card.  Another problem is that you will probably pay more because you rarely spend exactly how much is on the gift card.  Getting a $25 gift card to a new restaurant sounds fun, but unless you get the amount to exactly $25, you will pay more.  This is a decent option if you get a gift card for a place you already spend money at.

Merchandise:  Buying stuff from credit card companies with your reward points is almost always a bad deal.  Paying for an tablet or a laptop with points may seem like a sweet deal, but you’re much better off using those thousands of points for cash back or gift cards.  When in doubt just run the numbers.  If you can redeem those points for more in cash back than the item costs on Amazon, for example, buying stuff with points is not a good idea.  This is my least favorite redemption option.

Airline Points:  These are the most tricky but potentially most lucrative form of rewards.  I used to think if you don’t travel much then these rewards are useless.  But pretty much everyone has to travel somewhere at some point in their lives so it is helpful to have some airline miles in your back pocket.  These can be tricky because one airline can value its points differently than another one.  As a side note I use the word “points” instead of “miles” when referring to airline rewards.  This is because that is what some of the airlines themselves are doing nowadays and also because the days of airlines giving “miles” based on how many miles you’ve flown with them are becoming long gone.  As everyone knows, airlines are doing whatever they can to make money from us so they have also become more stingy and mysterious with their rewards programs.  However, there are still deals to be had if you plan ahead.

There are many different factors to consider in order to fully benefit from airline points, but the main thing to be is flexible.  Flying from New York to LA could cost 25,000 points one week and 50,000 points the next.  If you’re flexible with your dates and plan far enough ahead, airline points can be very lucrative.  Taking advantage of credit card bonuses is also a key component of the airline points game.  This deserves a whole series of posts to itself so I won’t go into too much detail, but using credit card bonuses and being flexible with my dates allowed me and my wife to get round trip first class tickets from Baltimore to Portland, Oregon for taxes only.  This came out to around $30.  This would have cost around $4000 if I paid without points.  This shows how powerful airline points can be if you play the game right.

These are the main types of credit card awards being offered currently.  It is hard to say which reward is “best” because it depends on your personal situation.  If you have some travel coming up soon, it is worth your time to learn the airline points game and maximize your travel rewards.  If you don’t like traveling much and spend a lot on gas and groceries, a cash back card might be right for you.  Determine the best card for you based on your situation.

Finally, it is vitally important to remember that the one thing that can negate any rewards earned on a card is carrying a credit card balance.  If you do carry a balance regularly, you have no business getting a rewards credit card as the interest rates are usually way higher than normal and you should be focusing on getting out of credit card debt first and foremost.  Credit card companies are just waiting for you to slip up and start carrying a balance, because they will reap the rewards in interest paid by you.  As long as you don’t carry a balance and use a rewards card wisely, they can be a  very helpful tool.




Why a credit card is like a machete.

If you take a look in the purse or wallet of any American, you will most likely find a credit card or two.  Or three.  Or more.  The problem is that while many people have credit cards, many of them do not know how to use them responsibly, or how to use them to their benefit.  According to, the average cardholder has almost four cards, while 1 in 7 people have 10 or more cards.  With that many cards in circulation in the country, it would be prudent for people to know why they have a credit card and how they can best use it.

Credit cards are a tool.  A machete is also a tool.  A credit card used responsibly can be a good way to track your spending and possibly earn some rewards.  A machete used responsibly can help you clear vines and brush to safely lead your party out of a jungle.  A credit card can also destroy your credit score if you are late on a payment or carry a large balance.  A machete can also be used by a crazed man in a hockey mask to terrorize unsuspecting campers.  See where I’m going with this?  A credit card can be your best friend while also being your worst enemy.

A credit card is essentially an interest free 30 day loan, with conditions of course.  The main condition is that you pay it back by the due date.  This is the problem that many Americans have nowadays, as they charge anything and everything they can and then are stuck with a bill they cannot pay off in full.  This is when the high interest rates kick in.  Credit card interest rates are regularly in the double digits.  Scary.  This can be devastating to a family trying to make ends meet.  Every effort should be made to pay off the debt.  A logical way to do this is to organize your cards by interest rate, and try your best to pay off the highest rate card first, as this is the one that will cost you more in the long run.  Credit card debt can be painful, but action needs to be taken to stop the cycle.

Now that the depressing stuff is out of the way, let’s go over some of the benefits of having a credit card.  One of the major benefits which is overlooked by many is that a credit card is a major component in having a good credit score.  As NSAish as it sounds, a company called the Fair Isaac Corporation (FICO) has full knowledge of our financial habits.  They know when we open credit card accounts, get a car loan, are late for a bill or are paying our student loans on time.  They use this information to formulate a FICO credit score which is a number between 500 and 850 and represents our risk to any company that gives us a loan.  The lower the number, the more risky you are and the less likely you are to get a good rate on a loan or even get one at all.  Have a high number, and you can get the best possible rate on a loan.  This can come into play when we get a loan for a car or a house, which many of us will do at some point.  Having a good credit score will save lots of money over a lifetime, and it is an easy thing to do.  One of the major components is how we use credit cards and if we pay them back on time.  If you never have made a late payment and don’t tend to max out your cards, you should generally be in good shape.  Responsible credit card use is not the only factor in a good credit score, but it is a major one and an easy one to achieve.

While helping your credit score is arguably the main benefit of credit cards, there are others as well.  From a financial planning standpoint, credit cards are handy because they can give you a line by line history of where you are spending your money.  With this information, it is easy to find problem spending areas and make the proper adjustments.  Another benefit is convenience.  While this can also be a drawback if taken too far, the convenience of credit cards makes them attractive as you can just pull out the card if you are short of cash or don’t feel like using cash at all.

Finally, credit cards that give you rewards such as cash back are useful as well.  These should only be used if you do not have any credit card debt and can be tailor made to your life.  If you do a lot of driving for example, a gas reward credit card would be a good choice.  If you do a lot of traveling, a travel rewards card can be helpful.  While you shouldn’t spend extra just to get certain rewards, getting something back for purchases you already make can be helpful.  I’m a big credit card rewards guy so I will definitely go in depth into these in future posts.