My wife and I have what every American has today. A Credit Card. We are part of the minority of Americans who use their credit cards like short term loans with fun little prizes if you gain enough “points”. Now you are probably thinking what a dangerous game you play. Daftly dodging the interest rates for a plastic trinket or knick-knack at the end of the mouse-trap, and I would have to agree.
My wife and I started using our credit card to pay what I will call “unavoidable expenses” in the fact that these expenses were ones we were going to incur anyway. These have primarily fallen under categories like electric, natural gas, cable tv/internet, cell phone, water/garbage, and other small monthly purchases that we would 99% of the time purchased anyway with our debt card. We then pay the card off within 1-2 days after the expenses and I have often done the unthinkable and prepaid my Credit Card! What an odd site to see… a credit card with a negative number…
What this has given us is a total of 24,000+ world points to date ($1.00 charged equates to 1 World Point). So we have charged about $24,000 over the past three years of having this card and have earned 24,000 World Points. Now recently I have started to look at what these points will grant me in the “store” and I must say I am severely disappointed. Below is a sample of items at the 24,000 point range:
|Cash Invested||Points||Amazon Price||ROI|
|ROOMBA iRobot 440 Vacuum Cleaning Robot||$23,700.00||23700||$193.77||0.82%|
|MAUI JIM CO. Kahuna Gunmetal Sunglasses||$23,750.00||23750||$199.99||0.84%|
|APPLE CO. 8GB iPod Nano with Video – Black||$23,950.00||23950||$124.54||0.52%|
|BOSE (R) Mobile On-Ear Headset||$24,050.00||24050||$199.95||0.83%|
Sad isn’t it. The closest Cash Equivalent item we could purchase is at 25,000 points is a $250 gift card which caps out that ROI at 1%.
Now this post is not all Credit Card bashing and down with short term debt, but rather to go into credit cards with the goal of “beating the system” is a bit far fetched.
Tangent – To this day my wife and I have paid zero interest on our credit card purchases in the three years we have had a joint account. That is not to say the risk of paying interest is not there, but we have been very deliberate in our purchases and our payments to ensure this tool does not go awry.
The true use of credit cards
The true use is to build up credit, or more importantly your credit score. Now I do not base my self-esteem on how high my credit score is, but I do base my self-esteem on how good of a deal I can get. So in a year or two when my wife and I start looking for our first house I want to walk in with a strong credit score to obtain the very best mortgage interest rate possible, which could have a dramatic impact on what the above ROI analysis of our credit card purchases could be. If by using a credit card consistently over a long period of time reduces our interest rate by just 0.5% it could account for thousands of dollars in savings over the term of that loan.
Now I do not know for a fact this will hold true. There could be policies out there where if you pay off your credit card monthly it has no impact on your credit score but at this time we are working under the assumption that by having an active line of credit open and being utilized that it will pay off in the future, because if it does not we are taking a risk that if we potentially missed just one payment would nullify our entire endeavor.