Should I Use a Credit Card to Build Up Points for Rewards?
Get Out of Debt Blog – Month 6
October 2009 was sort of a ying yang month. Stocks fell, but I became fully vested in my company’s pension plan. Over a thousand dollar water bill, but my retirement accounts finally exceed $50,000. Our credit cards are paid off, but my wife continues to use them for points. That brings me to the question of the month…should my wife and I continue to use a credit card to build up points for various rewards. For example, we have accumulated 30,000 points in a credit card’s rewards program over the year. The approximate value of merchandise we can purchase with the points is equivalent to roughly $500. I will assume that requires about $1,000 worth of credit card charges each month to accumulate. Now that my wife and I are in a position to pay off the credit card in full each month, should we continue to use the card to build up points for these rewards?
If you haven’t been following my quest to get out of a half million dollars in debt, I suggest you begin with My Journey to Payoff half a million in debt or check the Get out of Debt Blog master page.
How to Get My Wife to Stop Using the Credit Card?
As most of you know who have been following this blog, my wife has completely dismissed my attempts to get her to read Dave Ramsey’s “The Total Money Makeover.” She is beyond reason, and doesn’t believe that continuing to use a credit card is dangerous to our effort to get out of debt. If I remember right, Dave Ramsey stated that using a credit card with the intention of paying it off each month is foolhardy. I don’t have the book in front of me at the moment, but the consensus was that only 15% or so will actually fulfill that intention and pay off the credit card debt every month. I don’t think the points are worth it, what are your thoughts?
Get out of Debt Goal Reminders
Goal 1: Achieve a Net Worth of $0 by paying down debt and increasing savings and investments.
Goal 2: Have $0, and I mean ZERO debt and liabilities.
Goal 3: Increase my net worth to $500,000. Basically, turn half a million in debt to half a million in assets…a daunting task to say the least.
Get out of Debt Status – Month 6
Financial Status for the end of October 2009:
| DEBT | EQUITY | Asset Value | |
| Property | $271,553 | $300,000 | $28,447 |
| Remarks: This is our home plus our rental property. I took the value of the properties from Zillow to determine equity and subtracted the remaining balances on the mortgages to figure the Asset Value. |
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| Equity-Line | $39,100 | $0 | -$39,100 |
| Remarks: Took this line on our primary residence to fund the down payment on an investment property. | |||
| Credit-Cards | $1,788 | $0 | -$1,788 |
| Remarks: The Credit Card debt is just about paid off, but my wife insists on using it to build points for rewards. |
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| School-Loans | $152,615 | $0 | -$152,615 |
| Remarks: Yup, it's a lot. Between the both of us there are 13 years of schooling with no parental help. We'll probably tackle these last as the interest rates are very nice. |
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| Vehicles | $31,400 | $26,700 | -$4,700 |
| Remarks: I took the trade in values for both vehicles from Kelley Blue Book to determine equity and subtracted the remaining balances on the loans to figure the Asset Value. |
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| 401Ks | $0 | $50,342 | $50,342 |
| IRAs | $0 | $7,242 | $7,242 |
| Pension | $0 | $6,336 | $6,336 |
| Remarks: Great news at work is that the time restriction has past and now I am vested in the company pension plan. |
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| Investments | $0 | $7,000 | $7,000 |
| Remarks: This is a gamble on an IPO that still hasn't panned out. | |||
| Savings | $15,417 | $15,417 | |
| 529 | $2,199 | ||
| Remarks: I can't let my kids have the same burden as my wife and I with school loans. Our goal is to pay for at least half of their college education...which is not included as assets. | |||
| Totals | $496,456 | $413,037 | NetWorth: -$83,419 |
| Monthly Changes | $2,778 | $9,210 | NetGain: $11,988 |
My Get out of Debt Monthly Budget
I’ve tracked our income and expenses for the month of October 2009.
| Income | This Month | Over/Under | |
| Salaries and rental income | $18,179 | $20,393 | +$2,214 |
| Remarks: Ah, a 5th week payday...those are nice, but we're still not making much for rental income anymore due to evictions and vacancies. |
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| Other | |||
| Total: $20,393 | |||
| Deductions | |||
| Taxes | $3,841 | $3,841 | - |
| 401K | $1,240 | $1,240 | - |
| Remarks: We could put this toward debt, but I need to match company contributions and the investment market is just so under valued at the moment. I hope I'm making the right choice. | |||
| Life-Ins | $48 | $48 | - |
| Health-Ins | $465 | $465 | - |
| Dental-Ins | $30 | $30 | - |
| 529 | $100 | $100 | - |
| Total: $5,724 |
Remaining Income: $14,669 | ||
| Long Term Debt | |||
| Mortgages | $2,737 | $2,800 | +$63 |
| Equity-Line | $200 (min) | $200 | - |
| Vehicles | $821 | $821 | - |
| School-Loans | $1,286 | $1,286 | - |
| Total: $5,107 | Remaining Income: $9,562 | ||
| Expenses | |||
| Insurance | $415 | $215 | -$200 |
| Medical | $30 | $66 | +$36 |
| Day Care | $450 | $440 | -$10 |
| Kids School | $200 | $48 | -$152 |
| Remarks: To cover various school functions and the yearly tuition cost. This should be negative for 11 months while the savings is built up for the one a year tuition payment. |
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| Gas | $300 | $248 | -$52 |
| Remarks: The Wife's office just moved locally which will reduce our gas budget by $200. Yahoo! | |||
| Clothing | $75 | $37 | +$38 |
| Food + | $1,100 | $1,202 | +$102 |
| Remarks: The + means anything you would buy at a retailer, such as a shovel, toilet paper, lawn bags, clothing, etc. My wife does this sort of shopping and I go crazy figuring out why these necessities are so expensive. We go from $1,700 to $800 to $1,200 this month and I can't figure out why. What is the variable I am missing. The wife has no idea and gets irritated every time I ask. |
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| Electricity | $450 | $276 | -$174 |
| Oil | $800 | $147 | -$653 |
| Water&Sewer | $255 | $1,019 | +$764 |
| Remarks: This should even out over the year. |
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| Trash | $20 | $20 | - |
| Internet/Tele | $80 | $86 | +$6 |
| Cells | $150 | $187 | +$37 |
| Cable | $130 | $6 | -$124 |
| Memberships | $10 | $0 | -$10 |
| Remarks: Health Club memberships and the like. | |||
| COH | $400 | $320 | -$80 |
| Remarks: COH is Cash on Hand that is spent every month on lunches at work, fast food on the go, tolls, quick marts, small apartment fixes, and the like. |
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| Credit Card | $275 (min) | All of our extra income goes toward this. Therefore, the paydown is tracked above in the Debt status table |
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| Newspaper | $10 | $100 | +$90 |
| Gifts | $100 | $57 | -$43 |
| Dinning Out | $200 | $164 | -$36 |
| Entertainment | $200 | $16 | -$184 |
| Remarks: Entertainment is for movies, day trips, games, and other luxuries. Obviously, these aren’t needed, but for now we’ll keep it at a modest amount. |
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| Incidentals | |||
| $266 Various Apartment Fixes and other unaccountable spending. | |||
| Total: $4,920 | Remaining Income: $4,642 | ||
Finally, $50,000 Worth of Retirement Savings
Although, the stock market wasn’t singing of profits this month, we still managed to pass the 50K mark worth of retirement savings. Being in our 30’s, that isn’t half bad…not considering the half million in debt we’re still working on. The addition of becoming fully vested in my company’s pension plan was a big boost to the overall retirement portfolio. I’m quite happy and proud of this, but I’m also aware that paying down the debts would net better results in the long run. However, most of the remaining debts are long term loans with low interest rates and the stock value of the market is still underpriced. Which is better, paying down loans or investing in retirement? In my case, where the credit cards are paid off (per say) and the economy is the way it is, I’m on the fence.
My Get out of Debt Progress for November 1st
My Get out of Debt Conclusion for the end of October
I’m quite pleased with this month’s progress, the 5th week salary, the pension vesting, and the over 50K worth of retirement savings has definitely brightened my day. However, I really need an answer to the overlying question for the month; Should my wife continue to use a Credit Card to build up points for rewards and is it worth the risk? If anyone has any arguments in my wife’s favor or ammunition I can use in my argument, it would be much appreciated. If all else fails, I stand by Dave Ramsey’s statement in “The Total Money Makeover.”
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Creating credit is a challenge a lot more of our young adults are facing daily. Banking institutions are not planning to loan to them and payday loan corporations do not report to credit agencies. I found this here: How do you establish credit when you need credit to get credit?. Numerous of them are not aware either that missing a single payment will impact their credit rating above and beyond making six on time. It is sad that it is a lot more of a problem to keep good credit than to screw it up. I think that it is unfair that a lot of banks doesn't want these young people to establish their own credits. I think that they should still give them a chance to create their own credits.
That is true ,but I also think that people should be paying with cash more often than not to get the feeling of parting with their money.It is all to easy now to just swipe the plastic and rack up the debts.
Young people should me educated why it is best not to use the credit card.If you can't afford it don't buy it.Granted that in case of buying property it is helpful to have a good credit rating ,but not through putting it on the credit card.
This is a good place to go if you are in need of financial help especially if you are from the UK
Value Place Debt Solutions
My husband and I spend about 400 dollars a month on groceries. This includes dog food, cat food, paper towels, toilet paper and food from the grocery store. It does not include restaurant meals or buying a soda from the gas station. Both of these I put in the "dining out" category. Your bill is extremely high and you say your wife cannot explain. Some of my suggestions is that she is buying other "household" items at places like Walmart or Target where you can get lettuce, an IPOD and a nice handbag :) And since it all shows up on the credit card as "Target" or "Walmart", it's just lumped in the "Food" category. I don't know, what do you think? Sound plausible?
Debt is a part of life.
The sooner you realize that, the less time and money you can waste trying to eliminate it. The debt really isn’t the problem: the worry about debt is. As soon as you become ambivalent to your debt, the better quality of life you can live.
Besides, being debt-free is not going to make you rich. Many rich people are in debt and they even manage to get richer while being in debt. The fantasies about wealth were written decades ago. You NEED debt in order to get rich!