This entry was posted on Thursday, July 17th, 2008 at 8:55 pm and is filed under 529, Children, Credit Cards, Food, Household, Planning, Saving and Investing, Spending Plan. Both comments and pings are currently closed.
Just about a year ago, ScrapperMom and I decided that we had reached the right end of the Credit Card Contiuum and that it was time to start earning some rewards for buying all of the things that we buy or pay for on a monthly or yearly basis anyway. We went in search of a rewards credit card.
Rewards credit cards come in many different flavors. There are air miles cards, new car purchase cards, free gas cards, free coffee cards, cash back cards, and even dedicated 529 earnings cards. ScrapperMom and I decided that since we could not afford to contribute anything specifically to our daughter’s 529 plan that we would look for a card that would allow us to earn money for her account.
One might think that since we wanted rewards to fund a 529 account, that we would choose one of the 529 rewards credit cards that are available. Unfortunately, the few 529 rewards cards out there have terms that are worse than those available from some other cards. For example, one card we looked at has a limit of $300 in earnings per year. Our goal was to put as many of our purchases as possible on the card, and knew that we would easily exceed the $300 limit. Another card we looked at was linked to a specific 529 plan that did not fit our criteria for such a plan.
Instead, it made more sense for us to apply for a cash back credit card. There are a lot of cash back cards on the market, and they all have different terms. Using the credit card finder at Bankrate.com, we looked through many different cards. Some, like the American Express Blue card have different rates for different spending amounts. You have to spend a lot of money before the rates rise to a level on par with many of the other cards. Most of these cards offer around 1% cash back on all purchases and 3%-5% on certain types of purchases, like fuel, groceries, and fast food.
Ultimately, we chose the Chase Freedom Card. This card offers 1% cash back on all purchases as well as 3% cash back on things like groceries, fast food, and fuel purchases. You can redeem your cash whenever you accumulate $50 worth, but if you are patient then you can collect $200 and trade that for a $250 return (which brings the cash back bonus to about 1.25%). We can’t use this card for most of our big bills like our mortgage, car, and student loans, unfortunately, but we can use it on a lot of the small stuff like cell phones, satellite TV, Netflix, periodic insurance payments, etc.
In the past year, we have earned over $750 in rewards that we have applied to our daughter’s college savings. In a typical month, we earn about 75% of our points at the 1% level and the remainder at the 3% level. Since it only takes about 4 months to accumulate $200 worth of rewards, it’s worth our while to wait until that point to cash out the extra $50, since that’s a much better return than putting $50 per month into almost any investment.
Obviously the key to this whole plan hinges on spending within our spending plan. We pay this card off every month with money from our checking account. Again, we don’t use the card to spend on things that we would not otherwise have purchased. One splurge purchase can wipe out a year’s worth of rewards in no time at all.
Many people have difficulty handling credit cards, and I understand that. However, many others have aquired the self-discipline to be able to handle credit cards without breaking the budget. I believe that not using a rewards credit card for things that we are going to buy anyway is just leaving free money on the table. I have spent years giving the credit card companies my hard earned money, and now it’s time to redeem some of it.
Do you use a rewards credit card? What kind of rewards do you get? Do you find it worth it?