Credit card reward dollars… to change, or not
A veritable avalanche of credit card offers has been descending into my home! Today in the mail came not one, not two, not three … but FIVE credit card offers. Today. I’ve received offers every day this week. And nearly every day last week. How I wish I would have had the forethought to save them all. I’d like to know just how many corporations are banking (snigger, snigger) on me being unprepared for the Holiday Season and therefore needing to transfer a balance to a zero interest card to Pay Off Christmas.
No, thanks. Don’t need a new credit card. I am very happy with the credit card I’m using. First, the balance is paid in full every month. I use Microsoft Money to track my purchases, and each month I balance the credit card just like a checking account.
The credit card pays us rewards that can be used in several different ways. We can redeem “Dollars” toward our insurance premiums. We can deposit them in checking, savings or money market accounts (with that bank). They can be invested in mutual funds.
From reading this blog you know that I own a small retail store. Not only do I use my credit card for all my household purchases, I use it for all of my wholesale product purchases as well. Inotherwords, I earn a fair amount of Reward Dollars.
For the past few years, I have redeemed them to pay my auto insurance premiums. I can’t say exactly what the savings have been, but I think the Reward Dollars pay for the full amount of insurance on at least one of our vehicles. Perhaps a little more. Unfortunately, I haven’t kept accurate records of this.
Lately I’ve been contemplating a change. Paying our auto insurance premiums is not a hardship. With proper budgeting, I could have the money set aside every six months and easily write out a check to pay it
The change I’m considering is to open a Money Market Savings account and periodically deposit my Reward Dollars into that account. We are not actively putting money into Savings right now (per our Debt Reduction Plan). We already have an adequate Emergency Savings Fund. Unfortunately, we cannot apply the Reward Dollars directly to debt as we don’t hold any debt with that bank.
Until now I’ve looked at the Rewards as simply a type of windfall that shows up when we have an Insurance Premium due. If I redeem, for example, 300 Reward Dollars, I don’t then take the $300 I just “saved” and snowflake it to debt. I just consider myself lucky. When I don’t have enough to pay the full premium, I take the remainder that’s needed out of our “slush” fund. However, I set a goal to get rid of the slush fund in 2008 and will begin to assign every dollar to a category.
I’d like to be smarter with my Reward Dollars, but I’m not sure what’s the best approach to take. I see 3 options.
- Continue as I’ve been doing and pay my Auto Insurance Premium with the Reward Dollars.
- Open a Savings Account and deposit my Reward Dollars and accrue extra savings which could then be periodically snowflaked to debt. At least in a savings account they could be earning Interest.
- Set a monthly budget amount to cover the Insurance Premiums, however Redeem the Reward Dollars, and snowflake the budgeted amount to Debt.
Whatever is decided, it has to be simple for me to implement. Anything that is either complicated or time-consuming will not work.
Advice and opinions welcome!
I’m no expert on finance, but here’s my take on it.
First, I’d not do #2 at all. I’m pretty sure whatever interest you’re paying on your debt is more than you would get in interest in a regular savingsaccount, and that interest is taxable.
I’d do sort of #3. I’d budget for the insurance premiums, that way you’re earning interest in the money as it accrues in your bank account until it’s due. I’d not wait until premium time to redeem my Reward Dollars - I’d redeem as soon as they reach the minimum you are allowed to redeem and put that towards the debt. Every day you lessen your principal is one day less in interest you pay on every dollar.
I’m curious to see what others’ take on it is!
- BeThisWay, Your idea is the best solution. However, I can’t redeem the Reward Dollars for cash. It has to go toward an insurance premium or into savings/investment account held by credit card’s bank. Does that make sense? That’s why I’m having trouble figuring out the logical way to redeem them so that I feel like I’m really earning something.
But you can put the Reward Dollars into a savings account, and then just withdraw the cash immediately.
I’ll have to definitely check into the rules for their accounts. Make sure there’s no withdrawal penalties or charges.
I think I would budget the money and then when you turn the rewards into your insurance snowflake it.
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