Tuesday, July 29, 2008

Rewards Credit Card – Nifty Tool or Instrument of Destruction?

I keep reading about maximizing cash back programs by using a rewards credit card. As a person who is just freshly out of credit card debt, getting another one of those suckers seems like an insane proposition. That experience has taught me loads about how to deal with them, though. And I am filled with an overwhelming desire not only to never pay one red cent more in interest to one of those companies, but to beat them at their own game. I am also tempted by the added protection a credit card offers compared to a check card. If anything fraudulent is charged on it, at least it’s not money that is GONE from my checking account, even if only temporarily.

After four plus years of paying off debt and not using a credit card at all, I am pretty comfortable with living far below my means. This is a lifestyle I will continue in order to fulfill my savings goals. Instead of paying off debt, I will be funneling money to my emergency fund at ING.

I am also firmly committed to keeping things simple, when it comes to my financial situation. If I were to get a credit card, I would only get one and use it for everything like I currently use my check card. I would track expenses in my register the same way, staying within my budget. The only added step would be paying the bill in full each month. This should only take a few seconds with online bill pay.

Unlike Free Money Finance who uses a combo method with American Express Blue Cash, I wouldn’t be comfortable with that extra layer of complexity. I would have to go with a single card and I would not consider getting anything other than a Visa or Mastercard. If I couldn’t use it for everything, I’d have to yank out the check card sometimes and cause some confusion. For that reason, I’m thinking about the Chase Freedom Cash Visa Card, which is the other card FMF uses and is also referenced in the Smart Spending article linked above. Both articles rank the Chase card second to the Amex in terms of possible rewards but point out that the Chase card can be more advantageous for those of us who do not spend as heavily.

I feel like for the effort of taking a few seconds to pay the bill each month, I could earn several hundred dollars a year and have an extra layer of protection on my purchases. However, I am in no rush to make this decision. It’s a big one for me and I’m just considering it at this point.

What do you think? Should I get the Chase Visa? Is getting one and using it to my own advantage a good idea or is it just tempting fate?

3 comments:

Dina said...

Amelia,

This is completely your choice.But since you asked, here is my feeling on the matter.

I can't tell you how many times through doing the FPU classes, that someone got a cc because they think that they can "beat them". Well when you play with snakes, you get bit. I would say 80% or more of these people find an excuse just one month and the debt spiral starts.

I use a visa debit card through PNC and get Visa Extras (gift cards, items, etc) and it's not a cc so I'm incurring no debt. Also I am signed up with several airlines and am accumulating miles via their frequent flyer programs without having a credit card.

Despite not having any credit cards, we have repaired our credit, can get a decent rate on a home loan (manual underwriting), rent a car, etc.

If you really are concerned with saving money, I would recommend going on avenues like mutual funds, 401K, money market, etc. Compound intrest will make you more money without you spending a cent!

Ok, so this sounds preachy, sorry, didn't mean to be, this is just one of my passions!

HEALTHY AMELIA said...

Dina, that is exactly why I asked! Thanks so much for your perspective. I talked with Cute Man about it last night and his suggestion was to make sure I built up my savings substantially before taking the risk. That way, I would always have a buffer to pay the balance. Right now the E-fund is at about $1,000 (earning about 3% interest) – that would pretty much cover most minor emergencies. I’m going to keep it growing to at least 3 months worth of my net salary (6 months worth of my share of our living expenses). I’m not sure what amount would make me feel comfortable using credit again (if at all), but we’ll see.

Megan said...

I think the question is whether or not you think you can keep things under control.

I use a rewards credit card. It's an Amazon Visa from Chase (in terms of companies, I'm incredibly happy with Chase). I pay it off every month. I've never carried a balance though, so I know I'm a rarity.

I keep myself on a budget, so I always know what I have and don't have, which helps keep me in check. If I use the credit card today for lunch, that counts as an expense. Doesn't matter that the credit card payment isn't due for a month. In my head, the money is spent. And that helps me.

If you think you can and will keep yourself in check, then sure. Rewards cards are great - something for nothing. I do it, and I love it. But it's up to you to be sure you stick to your plan.