Saving money by using credit cards

[calypso726]

I know that many are advocates of using cash only and do not use credit cards at all. However, used wisely one can save money by using cash back reward credit cards (the ones with no annual fee) over using cash for making their everyday purchases. If you don't carry a balance and pay in full each month then you don't need to worry about interest fees. I'll share what I've done and am doing in hopes that someone else might find the idea helpful.

There are a few cards with no annual fee that offer 5% cash back on certain spending categories, like gas, groceries, travel, restaurants, department stores etc. on a quarterly basis. There is usually a cap on how much you can earn per year or per amount spent. Chase Freedom and Discover cash back (as of Jan.) will cap the 5% earnings at $1500 spent per quarter. Citi Dividend will allow unlimited 5% earnings per quarter on their categories but cap at $300 in cash back earned per year. Now, I don't spend $1500 per month on gas or groceries or even combined, but I will happily take 5% cash back on what I DO spend.

If I am spending money and the purchase is not in one of the 5% categories I will switch to another card that pays me more than the 1% that those will on other categories. If it's gas, travel or dining, then I would use the American Express True Earnings Costco card which pays back 3% year round on gas up to $3000 in gas purchases and pays 2% on travel and restaurants. The card I use for everything else is the Capital One Cash Rewards card. You earn an unlimted 1% on spending and then at the end of the year a 50% cash back bonus on top. So basically 1.5%. Sometimes there are other bonus offers. Discover is giving 2% back on all spending done tomorrow. During your birthday month they give you 2% all month too. My birthday is Jan. 1 so I will be paying my DVC annual dues with the Discover card.

The Chase Freedom, Citi Dividend and Capital One Cash Rewards each had a sign on bonus for applying and spending a certain amount within 3 months the card. I happened to apply for and receive the cards right before going to WDW on vacation. Chase Freedom offered $300 for spending $500, Capital One was $100 for spending $500 and Citi Dividend offered $200 for spending $500. That was basically a $600 savings on our vacation! Of course I paid it all in full as soon as I got home but have over $600 left over

Keeping track of what categories in which cards are earning 5% can be daunting. But then again so can clipping and organizing coupons. I keep a sticky taped on each of my cards with what categories are 5% on that card during the quarter. However, that can lead to some interesting comments LOL Last week we were at WDW and dining at Flying Fish. I gave our server a credit card to pay the bill. The card has a sticky on it that says "dining, movie theaters, department stores." When the server came back he said, "Well, I wasn't expecting secret messages, but here's the first part." Then he handed me the bill and said, "I've ordered you guys tickets to see the midnight showing of the Muppets in Downtown Disney and Sears will be delivering your new home theater system tomorrow."

 

[SuzyQue]

What a nice job you did explaining this, we do exactly the same thing. Years ago we started with the Discover Card, then got the Disney Visa (of course), then got a Citi Dividend card, they used to give 5% back on gas (before it skyrocketed), groceries, and drug stores. They eventually dropped it back down to 1%, understandably. When we had earned our cap of $300 with Citi, we got the Chase Freedom card and started working on earning our $300 from them. We eventually stopped using the Discover card (they weren't doing the 5% categories yet). Last year they called us and offered us $100 if we started using the card again (so much within so long) and we said sure, easy $100. The only thing I don't like about Discover though is you have to charge so much $3000) each year before you can start earning the 1% and above, with Citi and Chase you start earning from the get-go.

As you do we always pay them off every month, always have from the very first credit card we owned. I carry a piece of paper in my wallet clarifying what each earns at any given time, and my friends get a good chuckle out of us in the restaurant when my DH says "which one am I using this time" and I check my cheat sheet. It's just so easy and like free money.

 

[kydisneyfans]

My Chase check for $439 is on my desk ready for cashing this morning, and I haven't paid a dime in interest since 2005. That is for 2nd half of 2011 spending through Dec 10. It's always nice to have some extra dough come vacation time.

 

[mrspaha]

I try to do the same thing, with about 4 or 5 credit cards. I really have to make a conscious effort to stay on top of it though, to make sure I pay the bills ontime because these cashback rewards cards typically have higher interest rates.

I'd also like to add that I particularly like the Chase Freedom card. You can redeem your points to get discounts on a few selected gift cards, which change I think quarterly. For example, I believe it was around September that I noticed I could get $25 Kohls gift cards by redeeming $20 worth of points. Currently you can get a Bath and Body Works $25 gift card for $20.

 

[calypso726]

What a nice job you did explaining this, we do exactly the same thing. Years ago we started with the Discover Card, then got the Disney Visa (of course), then got a Citi Dividend card, they used to give 5% back on gas (before it skyrocketed), groceries, and drug stores. They eventually dropped it back down to 1%, understandably. When we had earned our cap of $300 with Citi, we got the Chase Freedom card and started working on earning our $300 from them. We eventually stopped using the Discover card (they weren't doing the 5% categories yet). Last year they called us and offered us $100 if we started using the card again (so much within so long) and we said sure, easy $100. The only thing I don't like about Discover though is you have to charge so much $3000) each year before you can start earning the 1% and above, with Citi and Chase you start earning from the get-go.

As you do we always pay them off every month, always have from the very first credit card we owned. I carry a piece of paper in my wallet clarifying what each earns at any given time, and my friends get a good chuckle out of us in the restaurant when my DH says "which one am I using this time" and I check my cheat sheet. It's just so easy and like free money.

Thank you The only card I know of with no annual fee, giving 5% cash back, year round, no caps, right now is the Pen Fed card. You have to belong to their credit union and to qualify for that, be part of the military or related to someone in the military. You can also qualify by making a one time $15 charitable donation to Voices for America's Troops. Not bad and it's next on my list of card to acquire

I keep a list with my receipts for spending caps. Discover $300 spending cap was easy to reach and then switch to my other Discover card. But as of January they are matching Chase Freedom's $1500 spending cap. Yeah, I hate the fact that you have to spend $3K to reach the 1% on everything else. Fortunately you don't have to reach the $3K to earn on your 5% categories. Discover is also offering 2% if you enroll using their card for automatic bill pay on your phone, internet or cable service for all of 2012.

You know it was my Disney Visa that led me to playing the juggling reward cards game. I used it for EVERYTHING and so did DH. We live in FL about 3 hours away so we go to WDW 5 - 10 times a year and also love DCL. Twice we have used our Disney Visa rewards to nearly completely pay for the DVC Member cruise. It got me to thinking that if I played this credit card game right we could have paid the cruises in full and had $$$ left over. We still use the Disney Visa to book and pay for cruises because the onboard credit earned is over any reward % on other cards and you get 6 months 0% interest. That will come in handy when the new Grand Floridian DVC goes on sale

I try to do the same thing, with about 4 or 5 credit cards. I really have to make a conscious effort to stay on top of it though, to make sure I pay the bills ontime because these cashback rewards cards typically have higher interest rates.

I'd also like to add that I particularly like the Chase Freedom card. You can redeem your points to get discounts on a few selected gift cards, which change I think quarterly. For example, I believe it was around September that I noticed I could get $25 Kohls gift cards by redeeming $20 worth of points. Currently you can get a Bath and Body Works $25 gift card for $20.

Part of my morning ritual is to and see what is due when and make online payments through my bank's bill pay and cross off on my list as I go.

I will have to pay closer attention to the gift card offers. Thanks for the heads up!

My Chase check for $439 is on my desk ready for cashing this morning, and I haven't paid a dime in interest since 2005. That is for 2nd half of 2011 spending through Dec 10. It's always nice to have some extra dough come vacation time.

Couldn't agree more!!!

 

[Couchy]

I also use the rewards systems on the CC.

I just took $400 of my Disney Package, and had Chase Freedom cut me a check for about $600. This is all since April, $300 of the Chase Freedom check was a sign up bonus on that Chase card.

I love using the credit cards. They have been earning me spending $ for vacations for the past 5 years.

 

[Sandy61]

This is what I do also. No annual fee and almost $300 free cash this year (maybe more because we just bought a fridge). I put everything I can on the CC because of the cash back...sometimes even pay bills that way. For instance if it is getting close to the due date on the cell phone bill.

There are websites online that will help you figure out which card is best for your spending habits. Credit card wizard or something. Just google for a website that lets you compare and put in your spending info and the best CC will be listed in order of what you will gain in cash back.

I don't even have to mess with a check...I just roll the reward back into paying off the balance.

 

[hsmamato2]

You know...I've been doing this (OP) for over twenty years myself...and am currently starting to rethink some things....
I've never paid interest,etc, get cash back checks every 6 months or so...have gotten free airline tickets cross country,free disney cash in the thousands... but....
... my discipline wasn't quite as tight as in the past (it's easy to relax when you have that 'safety net' to catch you)
So I ended up paying an interest charge this past month that opened my eyes. Again,nothing major,more like a small 'penalty loss' or 'life lesson' type of thing, but enough to remind me that using cc's takes a LOT of discipline,and constant wariness to avoid paying extra. And truth be told, a couple of extras,we would have waited on without that cc .....(the charge came from my choice to pay off a large balance owed,but having to wait 3 DAYS to pay off a tiny portion of it) thus having to pay...now I called my cc company and went thru the charge carefully so I could fully learn what I did...
His explanation cleared the smoke a bit for me......" When you accrue a balance each month, we are calculating daily interest on it. IF you PIF by due date,*we 'FORGIVE' that interest charge.* If you leave just a bit,for an extra day or two, we calculate from that 'overdue' date,right on through your next due date."
All stuff I knew, but hearing it put that way....just clarified some stuff.
My point? It's easy to think b/c we Pay In Full monthly,we accrue no interest charges. WRONG. You are just 'forgiven' those charges.
I utilize the system like OP,and I now feel uncomfortable thinking I owe someone something for 'borrowing' their money (my cc use)
Plus the fact that when I use cash or debit card (mostly) I don't have that nagging feeling that I owe at the end of the month. I don't know why,as I get older this thought disturbs me,it just does.
So....my thoughts? If you use them,be careful. I'm not even angry at my cc company for that charge, I know I owed it. It was just a bit of an eye opener for my personal point of view,is all.
The biggest thing is this,unless you have the discipline to SET A WRITTEN BUDGET ahead of time monthly ,and STICK TO IT- instead of just paying "whatever" off at the end of each month, you shouldn't mess with cc's!!!
(most people can't do that)

 

[mom2rose&john]

My husband and I charge everything and pay off the balance monthly so as to not accrue intrest and have done this for the past 10 years. This has worked in our favor and we consistantly get back $300-$500 every year depending on our expenses. It works for us because we are very mindful of what we can how much we can charge so as not to go over our budget and are not impulse item purchasers.

Thanks for expaining this so well OP. Educating yourself (on everything including fiscal responsibility) is very important to having a rich and rewarding life (and not just with material and monetary items).

 

[MrsPete]

Yes, we do the same thing and enjoy the free rewards. For example, if we know that the extra 5% is available for groceries this month, we'll do a big stock-up shopping trip before the month ends; if we know that next month's offer is for gas, we'll wait 'til the 1st to fill our tanks.

The keys are, of course, to know exactly what "pays", never to buy anything you wouldn't have bought anyway, and always to pay your bill in full every month.

Clearly, though, the credit card companies have to have money-money-money at their disposal to offer these rewards. They don't do it to be nice. Rather, they do it to tempt people to build up balances they can't pay each month. Play their game, but play it smart, and you can win.

 

[Muushka]

Thank you OP for this info, very helpful.

I have a question about using credit cards. Does anyone know if there is a minimum that a business pays when someone uses a CC?

For example, I get 2% using my Costco Amex at restaurants. If we go to McDonalds and spend a few dollars, I use it.
But if McD has to pay a minimum, say .75 per transaction, and I only get a dime, seems kind of stupid to do that to a business.

I hope that makes sense. I like to make money on my CC, but at the same time I don't like to make the businesses pay high fees for my dime!

 

[PrincessDadx2]

It depends where you are in life. The reason why credit cards exist is because studies show that people who purchase with credit cards spend 15%-30% more per ticket and merchants want that business, and banks collect a lot of fees and interest.

It's pretty simple, if you walk in McDonalds with $3 in your wallet you can only buy 2 dollar items plus tax. If you have a credit card you can get the $5 meal. With a credit card you are not limited to the money in your wallet, but can spend whatever you want. You receive more goods, but you spend more.

Same thing at the grocery store, you throw something in or on a good sale and spend an extra $10 or $20. You fill your tank at the gas station vs. just putting in $10.

If you have a cushion in your finances it is not a big deal to spend an extra hundred bucks a month. Might even be good if you stock up on a good sale at the grocery store.

If you are living on the edge $100 per month could break you. Combine that with a $39 penalty fee and a 20% interest rate because an emergency happens and you need to give $300 to the hospital instead of you credit card company and the cycle starts. It is hard to dig out once you start down the path.

Cash avoids that. You may be broke, but you are not swimming upstream against 20% interest. You will also look for more creative solutions because you can't just charge your problem.

Personally I like the convenience, but I don't fool myself. I am an extremely disciplined person, but I know I spend more than the 1% or 5% I get back. If I was on a tight budget I would stick with cash.

 

[Muushka]

It depends where you are in life. The reason why credit cards exist is because studies show that people who purchase with credit cards spend 15%-30% more per ticket and merchants want that business, and banks collect a lot of fees and interest.

It's pretty simple, if you walk in McDonalds with $3 in your wallet you can only buy 2 dollar items plus tax. If you have a credit card you can get the $5 meal. With a credit card you are not limited to the money in your wallet, but can spend whatever you want. You receive more goods, but you spend more.

Same thing at the grocery store, you throw something in or on a good sale and spend an extra $10 or $20. You fill your tank at the gas station vs. just putting in $10.

If you have a cushion in your finances it is not a big deal to spend an extra hundred bucks a month. Might even be good if you stock up on a good sale at the grocery store.

If you are living on the edge $100 per month could break you. Combine that with a $39 penalty fee and a 20% interest rate because an emergency happens and you need to give $300 to the hospital instead of you credit card company and the cycle starts. It is hard to dig out once you start down the path.

Cash avoids that. You may be broke, but you are not swimming upstream against 20% interest. You will also look for more creative solutions because you can't just charge your problem.

Personally I like the convenience, but I don't fool myself. I am an extremely disciplined person, but I know I spend more than the 1% or 5% I get back. If I was on a tight budget I would stick with cash.

Are you replying to my question?

 

[abcboys]

Thank you OP for this info, very helpful.

I have a question about using credit cards. Does anyone know if there is a minimum that a business pays when someone uses a CC?

For example, I get 2% using my Costco Amex at restaurants. If we go to McDonalds and spend a few dollars, I use it.
But if McD has to pay a minimum, say .75 per transaction, and I only get a dime, seems kind of stupid to do that to a business.

I hope that makes sense. I like to make money on my CC, but at the same time I don't like to make the businesses pay high fees for my dime!

Yes, I'm pretty sure that businesses have to pay a minimum every time someone uses a credit card. (I'm not positive what the amount is) My dad owns a small business and takes credit cards but definitely prefers cash or checks. I think my mom said they have to pay around 60-70 dollars a month in fees alone and remember this is a VERY small business. He really doesn't like it when someone comes in and puts $2 on a card. I pretty much use my debit card for everything but I try not to use it on less than $5 at small businesses. I don't do it often, but At places like walmart, I really don't care.

 

[PrincessDadx2]

Are you replying to my question?

No, but the answer to your question is that merchants pay a transaction fee for every credit/debit card transaction. It varies depending on their volume, but is typically a transaction fee (like $0.30) plus a % of the sale.

Merchants have recently received 2 concessions from the fallout of the recession:

1. They can now set minimum transaction amounts for accepting a credit card. Previously it was a violation of the merchant agreement to set a minimum limit.

2. Debit card fees were limited by law.

For major retailers your behavior does not really matter unless you have a concern of personal principle. The merchant raises their prices to cover the transaction fees. If you do not use a credit card for each purchase then you will personally come off worse than the people who use a card and get cash back.

For small businesses it can make a big difference. If you charge $1 at the local store then they will lose money on the transaction. If you buy a car, the 2% they pay in fees is more than their profit, so they won't take the card for the full amount (maybe just $5k or something like that, plus they make money on the bank financing). They may do it to have good customer service, but it does cost them money the same as a major retailer. The big difference is that they do not have hundreds of stores and millions of transactions to average them out. That is why some stores have set minimums or provide a discount if you pay with cash.

 

[Muushka]

Yes, I'm pretty sure that businesses have to pay a minimum every time someone uses a credit card. (I'm not positive what the amount is) My dad owns a small business and takes credit cards but definitely prefers cash or checks. I think my mom said they have to pay around 60-70 dollars a month in fees alone and remember this is a VERY small business. He really doesn't like it when someone comes in and puts $2 on a card. I pretty much use my debit card for everything but I try not to use it on less than $5 at small businesses. I don't do it often, but At places like walmart, I really don't care.

I think I won't use it anymore for the small purchases. Thanks!

 

[NancyIL]

It depends where you are in life. The reason why credit cards exist is because studies show that people who purchase with credit cards spend 15%-30% more per ticket and merchants want that business, and banks collect a lot of fees and interest.

It's pretty simple, if you walk in McDonalds with $3 in your wallet you can only buy 2 dollar items plus tax. If you have a credit card you can get the $5 meal. With a credit card you are not limited to the money in your wallet, but can spend whatever you want. You receive more goods, but you spend more.

Same thing at the grocery store, you throw something in or on a good sale and spend an extra $10 or $20. You fill your tank at the gas station vs. just putting in $10.

If you have a cushion in your finances it is not a big deal to spend an extra hundred bucks a month. Might even be good if you stock up on a good sale at the grocery store.

If you are living on the edge $100 per month could break you. Combine that with a $39 penalty fee and a 20% interest rate because an emergency happens and you need to give $300 to the hospital instead of you credit card company and the cycle starts. It is hard to dig out once you start down the path.

Cash avoids that. You may be broke, but you are not swimming upstream against 20% interest. You will also look for more creative solutions because you can't just charge your problem.

Personally I like the convenience, but I don't fool myself. I am an extremely disciplined person, but I know I spend more than the 1% or 5% I get back. If I was on a tight budget I would stick with cash.

We use reward credit cards for everything, but you are absolutely right that most people spend more when paying by cc than with cash.

 

[Dacky619]

I think most people don't understand that all the fees businesses are charged to accept credit cards are going to be recouped somehow. So yes, you might get 5% back on your purchase, but eventually everyone will be paying more for that item just to make up the difference. Gas stations and some pizza places around here already do a cash discount that is more than the credit card rewards. I would love if major retailers started that as well.

 

[elainesj]

We have a stack of credit cards we apply for to get the sign up bonus. It's paid off very well for us and we earn around $1000 - $1500 a year (maybe more?) in sign up bonuses and various rewards. I prefer travel rewards myself because it's "fun" money whereas cashback my hubby just deposits in our bank account and I never get to do anything fun with it.

We "churn" credit cards but keep a couple for day to day use. My hubby can't decide at present which one he likes though. Right now he's using our Delta Skymiles card a lot because he is worried about our flights to Disney and wants to earn more points. I typically use our Choice Visa (Comfort Inn, Quality Suites, etc) since for us, that's the best value for our money.

We also got a Disney Visa and got the $200 gift card when we applied this year. It's churned since we got it last year already and got a $100 gift card, then cancelled it.

It's true that it's a game and you have to know yourself and know if you can play it. Our friends see us reap the benefits, but for them, the hassle is not worth it. We keep a fairly large amount of cash in the bank at all times as my dh is most comfortable with a big cushion (I keep trying to advocate home equity line of credit....but it just makes him nervous) so we never have any problems paying off the CC balance. We live well within our means so overspending on CC is never a worry with us. We even pay for friends with our CC (and they pay us back in cash) so we can earn the points.

This year we got:

- abt 10-15 (lost track LOL)free hotel nights at Comfort Inn and Sheratons and Hampton Inn
- $300 off our Disney vacation in January
- $200 in cash rebate

I also still have another $2000 in airmiles racked up, most of it earned within the last two years through CC sign up bonuses, airmile promos, etc. that I'm spending next year. Also still have enough points for another 5-6 hotel nights that I'm saving for 2012 as well.

Churning CC is VERY rewarding for us. It definitely takes time and effort to research and you have to be disciplined in other ways as well. BTW, we get so much because our finances are split in both US AND Canada and we have a stack of CCs in the US as well as a stack of CCs in Canada. My DH has excellent credit that amazingly enough, is barely touched by all the CC churning we do. In the middle of all this churning, we even refinanced our mortgage with excellent rates.

My own credit isn't as good because we were silly enough for years to use DH's CC as our primary card. We've worked on fixing that and now use one of my CCs as our primary card and have done this for the last 3-4 years.
E

 

[ICF]

Wrong thread. Never mind