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My New Credit Card: Not for Credit

This article was written by in Credit. 6 comments.


Every Tuesday, Smithee presents an article about his own experiences with credit cards and observations about the credit card industry.

Two weeks ago I introduced you to a new credit card that offers 2% cash back that is deposited into a brokerage account. Then, a few hours later, I applied for the thing. In my experience, online credit card applications always say, “get a decision in minutes!” and then they feign some sort of technical difficulty, so you have to wait for the mail, anyway.

This was no different. But waiting didn’t matter, this time. Because for once, I had no plans to use the card to “extend” my “buying power.” I’m just using it for the rewards.

I’ve long scoffed at those commercials for credit cards which advertise “rewards”, internally thinking, “Sure, whatever, airline miles. But what good is it if you’re spending $100 a month on interest?” For years, that’s what credit cards were to me: devices that stole your current money because your previous self wanted to go out to dinner instead of eating soup at home.

I had $0.20 when I graduated college. But at least I got to go to college. I found a job quickly, but getting there meant spending money that I hadn’t earned yet. And the job did not pay well. Overwhelming credit card debt kind of snowballed from there. That was 11 years ago.

But later came ambition, smarter living, and marketable skills. Now I’m able to pay off my remaining credit card debt (roughly $6,400 right now) at a rate of $1,000 / month. It’s on a 0% card. I never charge anything on that card. But I do still pay for things. I set aside a little bit every month for lunch and movies with my wife. And lots of dog food.

So, I figure now’s an okay time to start getting in the habit of paying off one card in full every month. If it means 2% of what I’m charging gets redirected toward our future by way of investments, I can be that smart. The problem now is that I have to start learning about investing. But 2% back on my monthly charges will probably give me about a year before I have enough to buy a single share of anything. Got any advice for me that will still be good a year from now?

Published or updated December 22, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 6 comments… read them below or add one }

avatar Claire

I also just got the Schwab card – but I really think you should look for a rewards checking card (yes – I think they are worth the “hassle”).

I recently signed up through Charter Bank for their 6.1% APR interest rewards checking account. It is – so far – quite amazing and I now heartily recommend Charter as opposed to the dozens of others I looked at. The customer service is far superior to anything else I have seen at banks of late, and although you *cannot* call on weekends due to the bank’s small size, they are excellent at responding promptly to emails, etc.

More info on why I chose Charter and their requirements here. If you do want to do Charter, you should do so before February, when their APR will drop to 5.1% for new accounts.

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avatar Bill

Set your card to pay the balance in full every month with an EFT or auto-check. You’ll never miss the payment and never carry a balance…just be careful of what you buy on it.

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avatar The Weakonomist

I’ve used chase rewards for about 18 months now. 3% on groceries, fast food and gas. 1% on everything else. I just took my first check from them and it feels great to have an extra few hundred bucks in my pocket. I wish they would pay me for referring business bc i’ve gotten a few others on the card as well.

I only wish they’d let me design my own card, but that’s only so I could put a Jedi on my card to protect it from theft.

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avatar Andrew

I’ve been using a Citi Diamond Preferred Rewards card for several years now and I’ve milked Citi for $1300 in gift certificates without paying a single cent in fees or interest. Too bad they are refusing to renew my card next year, but I can probably squeeze a couple more hundred dollars out of them before then.

As soon as you figure out how to use a credit card without getting in trouble, they are really a great financial tool. You get protection from fraud and overdrafts because money isn’t coming out of checking immediately and you can dispute fraudulent charges with waiting for your funds to be returned. Using credit for everything helps me track spending in Yodlee Moneycenter (or Mint or any other online account aggregator). If I used cash exclusively, I’d have a much harder time figuring out where all those $40 ATM withdrawals were going.

Reward cards are kind of a no-brainer for me. I’m going to spend the money so why not get some of it back in some form of rewards. It’s like passing on an employer 401k match. Free money, no matter how little, is free money.

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avatar Bill M

I have 3 rewards credit card

American Express SimplyCash that pays 5% on cash(any gas station), 5% on my cell phone bill, 1% on everything else — I use just for this purpose
ChaseFreeDom, 3% on groceries, fast food, etc – I use just for this purpose now before I got the Schwab 2% on everything else. Works pretty well, about $60-$70 a month I get back on rebates.

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avatar Steve

I applied for the Schwab card after you introduced it to everyone. I had a decision back within minutes and have already received my card and started using it. Prior to this card I used a Chase Freedom Visa and we received $750 in checks over the past year. As with the Chase card, all spending will go on the Schwab card and it will get paid off every month.

Since the rewards get deposited into a taxable brokerage account, my plan is to just pile all the money into a tax-free municipal bond fund. I also get ESPP proceeds into this account and our intention is to use the account as a debt payoff account. Once enough money has piled up in there to pay off our remaining non-mortgage debt we’ll pay it off. Then the account can just sit there and accumulate for the future.

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