Save money through credit cards

This post is for people who have good spending discipline and do not have credit card debt.

The idea for this post came about after I got a letter in the mail from one of my credit cards informing me that they no longer issued credit cards to the state I live in (Utah), and that they would be closing my account. Never mind that I have stellar credit, and I have payed my credit card bill every month with this bank (BBVA Compass Bank). I think they realized that they were losing money off their credit card  where I got 5% cash back on groceries, gas, and pharmacies. I was getting $300 a year back from them, just for using their credit card to buy things I was already buying.

Free money, that’s what it is. Credit cards offer reward programs for using their credit card. I’m sure everyone is familiar with Discover who is probably one of the more familiar cards that do this (1% cash back). I personally prefer the rewards cards that give me cash, which can sometimes just be applied to my statement balance. This is opposed to say “Thank you Points” or rewards points for flying. Interestingly enough, Dave Ramsay has been quoted as saying that 75% of mileage rewards never get used.

Here is how it works. When you buy the things that you normally buy, you pay for it using one of these rewards cards. Each month, you pay your balance when it comes due. Its not costing you anything, and the credit card company is paying you to use their credit card. One key thing to keep in mind is that you must make sure that you are buying something because you would normally buy it, not because you are getting money back from buying it.

So I started searching the Internet looking for a suitable replacement for my beloved Compass Cash card. What I found made me realize that I had a pretty good deal that was not going to be replaced easily. While it can be a bit confusing, I believe that free money is worth a little organization. Below is the credit card setup that I have come up with for us:

REI Visa – Unlimited 5% rewards on REI purchases, 1% reward on everything else. Rewards accumulate towards my REI store dividend. REI can send you a check for your dividends if you don’t shop at their store

Discover More – Unlimited 1% cash back on all purchases with  changing limited 5% cash back catagories throughout the year

Penfed Platinum Cash Rewards – Unlimited 5% cash back on gasoline

American Express Blue Cash Preferred – Unlimited 6% cash back on groceries, 3% on gas and dept stores, 1% on everything else. This has a $75 anual fee which works for our grocery budget. If you spend $1000 in the first 3 months, they give you a $150 bonus which pays for the first two years of annual fees. They also have an AMEX Blue Cash Everyday card with no anual fee but only 3% cash back on groceries. There’s a spreadsheet  here (originally from Fatwallet) you can use to help decide which works better for you. You will have to copy or download the spreadsheet to edit it.

American Express True Earnings Costco –  3% cash back on gasoline (first $3000), 2% restaurants and travel, 1% on everything else including Costco. (No longer necessary as Costco will accept the other AMEX card we have.)

Capital One Cash Rewards Master Card – Unlimited 1.5% cash back on all purchases (1% on all purchases and an additional 50% of your annual rewards each year)

This is the setup that works for us. There are a lot of other rewards cards out there. Such as Target if you shop at their store a lot and if you buy from them. For those of you with good credit and can manage your money/budget responsibly, you are missing out if you are not taking advantage of these deals.

You will hear some people tell you that rewards programs are not worth it because they will make you buy more than you need. That’s where having responsible spending habits comes into play. We are already spending money, why not get money back for doing it? If you are a fan of the Debit cards, even if it has rewards associated with it, its not a good idea. Debt cards should not be used for anything but getting money out of the ATM machine. Debt cards do not offer the same levels of protection that credit cards do. For example, if someone gets ahold of your credit card information (such as through a skimmer), you are only responsible for a small portion or none at all of the charges that get made against your account. A debt card, your money is just gone. Also, many credit cards come with consumer protection such as extended warranties and rental car insurance, debt cards don’t give you this.

Another handy feature of using plastic instead of paper to pay for things is the ability to track your purchases and set up a budget. Each month, using financial tracking software (I use you can download your transactions from the bank, have a category for each transaction, and see how you are spending your money. This is really handy if you are trying to stick to a budget.

So, if you are financially responsible and would like to get some money back from your regular purchases, you should check out some of these cards to see if they can help you get some extra savings. If you do choose to sign up for one of these cards please contact me so we can find a way for me to get a referral bonus for telling you about the cards.

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