The Rewards of Conscientious Credit, or How Using a Mileage Rewards Card Actually Simplified Our Finances
Posted on May 24th, 2012
**Today’s guest post is contributed by Megan Taylor.**
My husband Ben and I recently decided to try the whole “rewards credit card for points” thing. The idea made us a little nervous, due to our previous experiences with credit cards. But we knew the benefits could outweigh the risks, so we decided to give a rewards credit card a try. So far it’s turned out rather well. The most surprising thing was how it’s simplified my job as the manager of our money.
Our History with Credit Cards
Four years ago, Ben (then my boyfriend) and I had over $5,000 in credit card debt on three cards. I know that’s not going to win us any awards for crazy credit card debt (thank goodness), but as two 24 year olds just starting out, $5,000 was overwhelming.
The thing that gets me is how preventable (I now know) that debt was. What did we spend it on? My beater of a car broke down twice. $700. Ben’s car totaled itself (transmission died), after we’d put new tires on it. $250. I needed dental work—a lot of dental work—and my insurance only covered a third of it. $2,000. And so on. And it all went on the credit card(s). Why? Because we had no emergency fund. Heck, four years ago, I didn’t even know what an emergency fund was.
When Ben proposed and we started planning our life together, I realized that one of us needed to figure out this “money stuff,” and nominated myself for the job. (Ben did not object; he’d rather do anything other than think about money.) Now, three years after tying the knot, we have a starter emergency fund ($1,000) and have been credit card debt free since December 2011.
Getting a Mileage Rewards Credit Card
You may be asking yourself why, after all that, we wanted a rewards credit card.
In learning how to budget our money and pay down debt (thank you, the internet), I read quite a few posts by people who didn’t think that credit was the “epitome of evil.” Not only did they not think credit was bad, they talked about how credit could work for you, if you were able to manage it well.
Since we’d figured out how to stick to a budget and live below our means over the course of paying off our credit cards, I thought that we might be up for the temptation of having a rewards credit card at our disposal.
We talked about it, and decided that getting a mileage rewards card made a lot of sense. For one thing, Ben’s family lives in Michigan, so earning miles would mean getting to see them more often. Plus, we never did take a honeymoon after our wedding, and we would love to take a trip to England sometime in the next few years.
Having decided to get a rewards card, we chose the Venture card from Capital One. After a lot of research into the different options, the Venture card consistently came out at the top of the stack, and it’s hard to beat 2x bonus points, even if there is a $59 annual fee.
Coming up with a Solid Plan
Because of our history with credit card debt, we realized that if we didn’t have a solid plan for how we were going to use our new credit card, we’d be lost before we even began. At its very simplest, our plan is this:
We only use our credit card to buy things we would have bought anyway.
This is a very common way to approach to using credit cards wisely, but I figure if it works, why reinvent the wheel? What this plan means for us is that we primarily use our rewards credit card on three of our budget categories: Gas, Groceries, and Miscellaneous Needs (which covers every-so-often purchases like haircuts or a new mop).
The only other types of purchases we decided we would use our credit card for is online purchases (for security reasons) and things we’ve been saving up for. The latter covers things like plane tickets, a celebratory dinner out, etc. The rule here: If we don’t have the savings to cover it, we can’t buy it.
Paying It Off (Weekly)
I find that paying off our card weekly helps ease my mind by making sure that we’re on track with our budget. Otherwise, I worry that we’ll get to the end of the month and our spending will be wildly out of control.
At the end of each week, I make three payments to our credit card: one for Gas purchases, one for Grocery purchases and one for Miscellaneous/Expected purchases. The three separate payments help me to track how much we’re spending in each category.
This is how having this credit card actually simplified my money management efforts. I used to obsessively record and categorize each purchase, but not consistently, so it would take hours to reconcile our accounts at the end of the month.
Now, I’m effectively reconciling our credit card purchases every day, and putting our spending in those three Needs categories has greatly reduced the number of checking account transactions I have to reconcile each month, saving me a lot of time.
Proceeding with Caution
Credit cards can be a great tool, if you can use them wisely. I would never have considered opening a credit card for the rewards points even a year ago. I was feeling too overwhelmed with our credit card debt situation, and wasn’t sure we wouldn’t spend too much.
The key to avoiding credit card debt was figuring out our credit weakness (in our case it was large, unexpected expenditures—i.e., emergencies) and how to avoid spending on said weakness. Now that we have an emergency fund, that’s less of a concern.
We’re proceeding with caution, but things are going well so far. We’ve earned 18,700 points and are using those points to visit Ben’s family in August.
Megan works in financial literacy education for the state of Colorado, and is about to start a three year educational journey to earn a Master’s degree in Accounting. She plans to become a CPA, and help small businesses better manage their money. She blogs at TheFinanceGeek.com and Becoming A CPA.
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