Trading Credit Cards with Rewards Programs for Cash-Flowing Bills
This post on cash-flowing vs credit cards is post #3 in my series on financial freedom and spirituality.
When I decided to pay off the car, then the house, I sat down and came up with a plan…naturally…and found a few chinks in the plan right away. First of all, I didn’t have extra cash to throw at the car pay-off. Or did I? For years, I’d been running all my bills through one card so I could get the perks of 1. gift cards for the first card I used up until 2010 and 2. travel perks for the card I used from 2010 until December 2012. That meant the phone bill, my Sunpass toll account, gas, doctors, groceries, etc were all going through one card every month and being paid off every month so I didn’t have to worry about interest or late fees. I got to use the credit for free.
Like many of my friends, I saw running my bills through one card as beneficial, especially if I paid them off in full every month. I’m spending the money on bills anyway, right? So I might as well get something back. With the first card, I was getting all sorts of gift cards, but since I had a good many repairs to be made in my home, I traded my bonus dollars for gift cards to Ace Hardware, Home Depot, and Lowe’s, often getting $50 of gift card for $40 of points. Yay, I’m smart, right?
Before I go on, let me back up. I couldn’t make an extra payment on my car because I had a month’s worth of my bills on my credit card–due in the next month. That meant my bills were always a month in the past on the new credit card bill. I needed to pay off my credit card bill in full as I did every month AND pay new bills in cash instead so that I could get the card down to $0. Nothing past, nothing present, nothing new on the card in order to start slamming down the car debt next.
The bad habit I’d discovered was that even though I was paying off the credit card on time and in full every single month and building a great FICO score, it had become too easy to swipe the card for things I didn’t really need. The girls would come home from college and Mom (that’s me) would take the poor, starving children out to dinner, to movies, to buy clothes, whatever they needed that they couldn’t splurge on and often whatever they wanted. It was even worse whenever I went to visit them because I’d buy furniture and other items for their college apartments, usually spending around $1000 on every visit. Mom’s a generous mom when her babies are in need.
Because using a credit card was too easy, I decided it would be best if I backed up and started using cash, checks, or my debit card and cash-flowing all my bills. This, by the way, is working out incredibly well, better than I could ever have expected, but back to my discovery of how useless my perk-y credit cards were.
Then in 2010, I knew for certain that I would be celebrating my 50th birthday hiking the Camino de Santiago on a spiritual pilgrimage with my grad student daughter. I traded my old card for a Capital One card, for the card that claimed to give the biggest travel points for dollars spent. Sounded good to me. Several of my colleagues were using Capital One for the same reason. None had used the travel points yet–they were all saving up, too, for that biiiiigggggg trip.
When it came time to buy two roundtrip tickets to Madrid, I was a little short of the amount of points needed to buy both tickets through the Capital One rewards program. I could buy one ticket, but I couldn’t get the same flights for the second ticket and part of the experience was that Shannon and I would be together on the entire trip. I also knew that I would have some dry eye problems with the long flight and until I could switch out my contacts in Madrid, so I was apprehensive about being separated from my eyes (Shannon) for the first couple of hours until my vision adjusted. Not flying together was a deal breaker. (My intuition was spot on, too, because our luggage was lost and I had a hellish first day in Madrid until my eyes adjusted.) After several days of looking for a satisfactory solution to sharing flights to Madrid and back, I gave up and bought my tickets with my credit card–and left the beaucoup reward points in my Capital One account. Sigh. I’d use them at some point, I told myself. (I’ve heard since that 60 to 80%, depending on the source, of people with rewards miles/perks never use them.) The tickets bought outside of the rewards program were cheaper, too, than the rewards program price, and not insignificantly. That came as a surprise, but shouldn’t have.
Fast forward a year, and I’m looking at paying off debt and a possible research trip to Virginia to make me smarter on the subject of the next Secret Lives of Librarians novel–but Capital One doesn’t offer rewards on any of the travel expenses I’d be limited to on this research trip/vacation. In fact, I could find cheaper travel than I could get through Capital One. Then it struck me that I might turn my travel perks into cash against my monthly credit card bill I wanted to zero out.
That’s when I realized the farce of the rewards program. Yes, you get twice the points, but they’re only worth half the total points. Let’s say you run all your bills through that card for 4 years and spend $50,000. That means 100,000 points, which you can cash in for …$500. When I switched from reward points to cash, it equated to about 1% of what I’d spent on my card over 2 years. It did put a little dent in the monthly payment but was far from paying off the entire bill.
The kicker? By switching from credit cards to cash, I can easily save in one month the amount necessary to fund that research trip and in 2-3 months, I can save enough to pay for another spiritual pilgrimage to Europe, if I choose.
Next up…how I paid off the car so quickly.