The Best Cash Back Credit Card Analysis For The Happy Rock

Posted on March 31, 2008

About a month ago, I switched my only credit card from my Sunoco Mastercard which I have had since college to the Chase Freedom card. Why? Because I was leaving money on the table since I wasn’t taking advantage of the new breed of cash back cards that have come out in the last few years.

Using my spending history I was able to quickly see how my Sunoco Card matched up to my other options. My Sunoco card offered 4% cash back on all Sunoco purchases and 0.5% up to $7,500 then 1% on everything else. It should be noted that when I called to cancel, they offered me six months of 5% back on gas and groceries. I probably should have taken that deal and waited to switch, but I was to intent on canceling. It is at least good to know that even credit card rewards can be bargained through a simple call and some competition.

The Chase Freedom Card offers 3% back on $600 a month in your three highest spending categories and 1% on everything else. They also allow you to save your cash back until you hit a $200 balance and then they will send you an check for $250, an extra 25% reward. You also gets $50 cash back after your first purchase.

The Amex Blue Cash offers 5% cash back on gas, groceries, and drugstore purchases and 1.5% on everything else after you spend $6,500 for the year. Before that you earn 1% on gas, groceries, and drugstore and 0.5% on everything. This would be the best single card if you could spend $6,500 really early in the year, but for my calculations I assumed distributed spending.

In the final analysis I chose the Chase Freedom card not only because it would earn me the most cash back for my spending habits and a $50 first purchase bonus, but it is also accepted everywhere credit cards are accepted, unlike the Amex Blue Cash. I know that I could do better using the Blue Cash or using both of them, but my general principle is to keep the system simple. I personally don’t want to waste any mental energy on trying to extract an extra few dollars in credit rewards. I would rather focus on things like income generation, family, and giving that all provide much better returns on my energy. I have been happy so far with the new card, and the $50 was quickly applied to my account. The website is solid and the Chase Freedom connects directly with Quicken to save me time. I am quite The Happy Rock with my new card. Plus it is shiny and new!

If you have COMPLETE control of your spending it is probably worth looking in getting a decent cash back credit card. I probably cost myself $2,000 in the last 5 years by not switching sooner.

Just to keep the record straight, despite my affinity for Dave Ramsey’s principals I slightly disagree with his views on credit card for those that have firm control of their spending. For those that are getting out of debt or don’t have control of their spending I would recommend canceling the card until you have complete control over your expenses, spending, and bill paying. For me, I didn’t understand the responsibility of that credit requires early in college, but I learned from my defaulted Sears card experience and have not paid a finance charge or fee in 10 years. That is the kind of spending history that I would recommend attempting to use a credit card to their benefit, otherwise it will probably costs you more than the measly rebates will gain you.

Note : For those that Drive a lot the Citi Driver’s Edge offers 6% on gas, groceries, and drugstores for the first year and 1% on everything else, plus a penny for each mile you driver. With a long commute that could add up to big bucks. The one caveat is that the cash back must be used for a car purchase within 5 years.

» Filed Under Credit Cards, Personal Finance Systems, Spending

The Lost Art Of Saving To Pay Cash For Purchases

Posted on March 16, 2008

Somewhere while I was digging out from $70,000 in debt, I learned that you had to be able to save and actually pay cash for purchases in order to avoid debt. Growing up this was not something that had been instilled into my thinking about money. It is something that doesn’t get much attention, but it is a needed tool in order to achieve financial success. So, let’s talk about it.

The whole system starts by extending your financial vision past the current day and thinking about purchases and bills that will be due months down the road. Then you just need to divide the bill/cost by the number of months until you need the money to come up with the monthly bill amount that will get you enough cash in hand.
For example, we know that we will need a new TV by Ferurary when US cable/antenna service switches from analog to digital. We expect to pay about $800 for a TV, so we divided that by the 12 months in the year and added that $66 dollar monthly bill to our list. Each month I transfer the money from our checking account to an ING Savings account labeled TV. When the time comes we should have all or most of the funds needed.

It really does feel good to have a plan for your money. I remember the feeling like we had really turned the proverbial financial corner when we started putting away $100 a month for auto insurance rather than paying the $3 a month service for so that we could do payments.

If you are still getting out of debt, the same strategy applies. If you don’t plan for future expenses, you will find yourself back in debt when these so called ‘unexpected’ expenses come up. With a little planning and discipline you start to realize that they aren’t unexpected at all, and that by having a plan for your money you can be in control rather than your bills.

» Filed Under Credit Cards, Financial Succes, Psychology of Spending

Don’t Let Your Credit Card Ruin Your Debt Reduction Progress

Posted on February 22, 2008

If you are in debt, you most likely know that access to your credit card is probably what got you there. If you are one of those people, just admit and live with it. It’s ok. Most of us have been there, but the true test is to learn from it.

Many of us get to the point were we are tired of being weighed down by our debt and begin attempting to undo our self inflicted damage. The thing is that most of us try to accomplish this without removing the tool that got us there. Removing the tool doesn’t have to be a forever thing, because the real point of getting out of debt is to change our behavior and our relationship to money. We create true change so that we don’t find ourselves making the same mistakes. In order to change our behavior though, it is often necessary to remove temptation while we regain our strength and perspective.

“But I love my credit card. It’s like a security blanky. What about my reward points? What if I get in a pinch and I need it?”

Sometimes truly important decisions in life require making bold moves. The change in perspective will do wonders for getting out of debt. Instead of riding the roller coasting in and out of debt, it might just change your wealth forever.

If you are really that nervous or don’t think it is necessary, just give it a try. Cut the card up, shred it, whatever. If you really miss the credit card, you can get a new one in a few months. There will always be credit card companies willing to let you use their money to get into debt; it makes them billions not you!

For most I think it will be an eye opening experience, one that might just truly change your life.

» Filed Under Credit Cards, Debt Elimination

What Happens When Your Wife’s Debit and Credit Cards Get Stolen

Posted on February 20, 2008

We found out last night. That’s right, when I opened Quicken last night to reconcile the days transaction I noticed a $1.59 charge from a local Wawa. I consulted with the Rockette and we noticed that her whole purse was missing. Mild panic sets in, and we begin to retrace our days. The purse was most likely stolen from our car while parked outside our condo.

I logged onto the ING Direct website only to notice 4 other posted transaction and about 10 pending transaction that weren’t ours. The charges were the aforementioned Wawa charged for $1.59, $90 from a local Target, 4 iTunes purchases for about $140 dollars, two TWX AOL SERVICE fees for $1.00 each, zubill.com for $29.95, lookuppay.com for $1.95, and 4 gas purchases for $60 dollars. 330 dollars in the span of one day. Luckily I check the account regularly so that I caught the fraud before more was spent.

There were a total of 3 debit cards and one credit card in her wallet. I quickly checked them all. Nothing on our Sunoco Credit Card, nothing on our NJM Bank debit card, and one Bed Bath and Beyond charge for $71 on our Wachovia check card.

The Rockette crawled out of bed, and we began calling all the cards one by one to report them stolen. We were on the phone the longest with ING, but the agent was kind enough to dispute the charges for us. Otherwise you can click on the little icon on the left side of the charge in the Electric Orange register to find out more information. This brings you to a screen with more transaction details where you can find a link to dispute the charge. Wachovia also quickly put in a dispute for the one charge over the phone. The whole process took about 45 minutes to cancel all of the cards.

The one thing that is helpful for people to realize is that you receive the same level of fraud protection with a debit card as you do with a credit card. Visa and Mastercard offer the same protection, except that with a debit card the money is already out of your account while the charges for credit card should be disputed before you have to pay any money. Both Wachovia and ING Electric Orange said they would credit the fraudulent amounts back into the account in a few days while the disputes are going on.

Hopefully, all the disputes clear fine and we don’t have any other issues. Crisis averted with hopefully just mild damage. Protect your wallets!

» Filed Under Credit Cards, ING Electric Orange

Principles in Action #2 : Accountability and Friends Can Save Your Finances

Posted on October 12, 2007

This is the second post in the principles in action series that will illuminate a practical application of a positive life principal. The first in the series addressed treating others like they have value.

The advertisement @ the Clever Dude was about the 100th time I had been bombarded with the free $250 for opening an American Express Business Rewards Gold Card offer, and I was finally ready to give in and get the money. I usually stay away from signing up for credit card schemes or opening a new savings account at every bank with a good intro offer. I just don’t think these schemes are usually worth the stress, effort, hassle, and most importantly they rob my attention from tasks that I deem more valuable to our overall health and wealth. That offer didn’t fit into our financial plan when we were getting out of debt and still doesn’t, but my resolve was finally beaten down past the point I could handle.

Over dinner I mentioned the offer to The Happy Rockette and asked her opinion. She politely said, don’t worry about it. It wasn’t our style, and her resolve wasn’t waning. She knew our plan and our values, and this wasn’t part of it. Two seconds after hearing that, I snapped back to reality and said ‘you’re right, what was I thinking’. The blinders had lifted, and I was back on track.

The principle here is to involve yourself with people in your life who will keep you accountable. People who will gracefully smack you around, and say you are being silly when they know you have lost your way. During the long haul of climbing out of debt, this is an utter necessity. You will lose focus and self control. At some point life will undoubtedly give you more than you can handle. The trick is to admit ahead of time and plan for it. Start building that support network now.

» Filed Under Accountability, Credit Cards, Debt Elimination, Friends, Marriage, Principles In Action

Tricks The Banks Play To Make You Pay

Posted on August 27, 2007

This is a guest post form Linda Bustos. Linda is an editor for CreditorWeb, where you can learn about credit cards, compare offers, and apply for a business credit card online.

We all know that banks are not on our side. They offer us products and services to make our lives more convenient and pull us through financial jams, but we end up paying for them through interest charges…and bank fees…and late payment fees…and overdraft charges…and NSF check fees…the list goes on.

Banks have no shame in trying to squeeze as many cents and dollars from their clients. Financial institutions have many games and tactics, but their only power over you is your ignorance to them. Here are 6 tips that banks will never outright tell you but that will keep your hard earned cash in your pocket.

1. Late Credit Card Bill Trick

Some credit card companies will send bills out late in the billing cycle, reducing the amount of time you have to actually pay the thing — sometimes with only a couple days. They’re legally required to send your bill at least 14 days before payment is due, but with mail eating up to three days each way, you have an eight day window to send in your payment. Online banking can shave three days off that time. But remember that sometimes your payment won’t go through the same day depending on which bank you’re using, so it’s just best to pay up the day you get the statement or set up automatic checking account withdrawals. But be careful if you choose that option, always make sure you have enough cash in the account. But, making only minimum payments is gonna cost you dearly in interest fees, so it’s best to just discipline yourself to pay right away.

2. Accidental Overdraft

You can ask your bank to monitor your checking account so that if you happen to overdraw your account, they’ll call you right away. Number one, you stop spending - and number two, you can request that they give you until the end of the day to replenish your account and avoid the $15-$25 overdraft penalty and the inconvenience of a bounced check.

3. Loan Insurance - Just Say No

Additional life or disability insurance on a loan only protects the bank in the event you die or cannot work anymore and can’t make your payments. You’re paying their premiums for them, plus they’re getting a commission on the insurance policy that originates from an insurance company. Bad, bad, bad. Life and disability insurance is fine, just get it from an insurance agency yourself and make sure the policy benefits YOU.

4. You Can Have Loan Fees Waived

Your mortgage loan or home equity loan is a great source of revenue for the bank. To save you from going elsewhere, the bank can stand to relieve you of a few hundred dollars worth of fees to keep your business - but you have to ask.

5. Interest Rates are Always Negotiable

“The rate for this type of loan is X%.” Wrong! There is always room for negotiation, and don’t be fooled by the banker’s tactics of not mentioning the rate at all and just filling it in on the note, or suggesting that because you need the money immediately you should take X% and you’ll negotiate it later.

6. Low Interest Credit Cards Could Cost You More

There are two common ways banks make up for the lower rate: annual fees and no grace period. If you’re paying $35-$50 for the privilege of a few percentage points less, that’s still a type of interest - a lot of interest if you don’t normally carry a balance anyway. And if the conditions of the lower rate involves no grace period, you will pay interest even if you pay faithfully in-full each month.

» Filed Under Banks, Credit Cards, Guest Posts

Is The Annual Credit Card Payment Coming?

Posted on July 9, 2007

Credit cards are cleverly designed so that we can comfortably spend more than we make. One of these design features is that we are allowed to make repeated small purchases, yet the purchase ‘pain’ is limited to a mere twelve times a year. By grouping all of the monthly purchases together, we can roll the ‘pain’ into a singular point each month. If at that time we can not pay the card off, it is another month until we have to face it again. In the meantime we keep charging and interest keeps accruing. We often try to maximize pain avoidance and immediate gratification; credit cards cater to us nicely. Very intelligent design.

With that said, what is the next evolution in credit card design? Just as mortgage companies ‘evolved’ products like balloon payments and interest only loans, the credit card companies want to create ‘better’ products for us. I wouldn’t be surprised to see a card on the horizon that will offer fewer than 12 payments a year. I can see the advertisement now, “Tired of paying your credit card every month. Pay your credit card just one time a year”. Maybe we could even choose our own payment schedule. Sure the interest will still accrue, but we can avoid facing reality for a whole year! Let’s be vigilant in understanding the design of finance products, so that we can distinguish good products from the bad.

» Filed Under Credit Cards, Psychology of Debt, Spending

The Credit Card Premium. How Much More Are We Paying?

Posted on July 6, 2007

Duncan Simester created one of the first experiments that attempted to directly test how consumer’s ‘willingness to pay’ is affected by credit cards. In this experiment 1^st year MBA students were instructed to provide a sealed envelope with the amount that they would be willing to pay for sold out Celtics and Red Sox tickets. One set of instructions required cash payment and the other a credit card payment. In both cases the face value of the tickets were not given. The prize was to be sold to the person who wrote down the highest price, but sold at the second highest price. This system was designed to extract the participant’s true ‘willingness to pay’.

The results were no less then surprising. Consumers were willing to pay 133% more for the Celtics tickets, and 76% more for the Red Sox tickets when using credit cards.

One of the suggested reasons is that consumers use different anchoring points to assess value. In one case the amount of cash the person has on them or in their account is probably used, and in the other the credit limit or remaining credit is probably used. Although the reason isn’t fully known, that shouldn’t really matter to the frugal spender. What matters is that there is such a thing as a ‘credit card premium’ and we need to be aware of it.

Has anyone noticed whether this is true in their own lives?

Source - Note the experiment was administered at a time when the Celtics were a playoff contender.

» Filed Under Cash, Credit Cards, Favorites, Psychology of Spending, Spending

Benefits And Drawbacks Of Spending Cash

Posted on June 29, 2007

In honor of the upcoming cash spending experiment I wanted address the benefits and drawbacks of spending cash. I will revisit this list after the cash experiment to see if I have anything to add or critique.

Benefits of Spending Cash

First and foremost, spending cash makes it impossible to spend more than you have. Going into debt is impossible with cash.
Forces us to face the consequences of a purchase up front rather then delaying it until after it is too late. Thinking through the consequences of a purchase may change your decision. By consequences, I am talking about making needless purchases, over-priced purchases, impulse buys, and even spending money that should have been designated to other areas. With plastic a lot of this information is gathered well after the purchase, and by that time it is usually too late.
Spending cash constantly reminds us of the value of a dollar. Buying a fancy $4 Starbuck’s coffee on plastic can become so much of a habit that we become oblivious to the fact that real money is changing hands. The consumer industry would love to make consumption as much like a video game as possible, they benefit when you forget what your money is worth. In this day and age with direct deposit, automated payments, and credit cards it is possible to earn and spend money without ever physically seeing any of it. It even kind of sounds surreal when you describe that way.
Spending cash hurts. This may not hold true when buying a pack of Wrigley’s Juicy Fruit, but it sure does when filling up an SUV at Sunoco. Psychologically, parting with cash is much tougher than swiping a card.
Paying with cash is faster. No waiting for signatures or authentication. Hand over the the cash, get some change, and you are done. Stores have ‘Cash Only’ lines for this reason.
A fringe benefit is that paying with cash can put more profit per purchase in the store owners pocket by avoiding the credit card company fees. For me I would rather give a little mom and pop shop some extra profit than line the pockets of the credit industry. This point maybe nullified if spending cash significantly lowers the overall spending in a given store.

Drawbacks of Spending Cash

Convenience, Convenience, Convenience. The hassle of finding proper ATMs, making sure you have enough for large purchases, and saving receipts to track your purchases makes using plastic make more convenient. Spending cash seems annoying, but I will see how annoying it is during the cash only experiment.
Security. Lost your wallet? You can probably kiss your cash goodbye. Plastic affords you extra security measures that cash just can not offer.
Credit card rewards. If spending cash proves to cut my spending by more than 1%, rewards won’t matter. I included it because rewards are where the credit card users get all worked up. They get quite passionate about their rewards. Free money, right? I suspect the credit cards companies are armed with more information than the consumer. We will see if credit card companies have done a good job blinding us with rewards.

» Filed Under Cash, Credit Cards, Experiments, Psychology of Debt

Save Yourself 18%? Cash Only Spending Experiment

Posted on June 27, 2007

With June drawing to a close, I wanted to lay out the plan for the cash only spending experiment in July. I talked about the impetus for the experiment in the ditch the credit card and save post.

Using the scientific method here is the break down of the experiment :

Goal : Test whether spending only cash will save 12-18% as Dave Ramsey suggests.

Hypothesis : Spending only cash will reduce the amount of money consumed in a given month.

Control : Currently the plan is to compare the cash only spending to the average of the previous 2 or 3 years of July spending, which was 95+% on credit and debit cards. I need to dig into the numbers a little more to find the baseline numbers that will account for things like vacation and other irregular spending. I may end up using an average of the all the summer months, but I will flesh that out in a later post.

Experiment : Spend only cash from July 1st to July 31st. This includes everything except bills which will still be paid online or by check for lack of a cash alternative. At first, I thought I would still pay gas with plastic, but ultimately that defeats the purpose of the test. Shelling out 50$ cash to fill up will have a physiological impact.

I do not plan to budget at all, since we only do post spending tracking as it is. I want to try and replicate previous years spending conditions as much as possible. The plan is to have plenty of cash on hand to spend on anything we want, just like we did with credit and debit spending. We will save all receipts and I will enter them into Microsoft Money every weekend.

Analysis : I hope to show the effect that spending cash will have on different categories of spending and on the overall budget.

Post Experiment : I will report status throughout the month and then final wrap-up in August. If the experiment proves successful and doesn’t need a follow-on month, we will move to a cash only envelope system to test the added benefits of the extra planning and control.