Credit cards sure get a bad rap these days. They’re viewed as some sort of plastic manifestation of unholy evil dispossessing otherwise rational human beings of their financial wits and, eventually, their money. Oh don’t get me wrong, I realize they’re popular. The world is in the midst of an epic debt binge orgy. So epic, in fact, the whole situation is absolutely worthy of using such inane redundancy as binge orgy. But despite our love affair with using them, credit cards continue to suffer our scorn.
Credit Cards Don’t Bankrupt People.
The whole situation reminds me of that infamous (obnoxious) NRA quote; “Guns don’t kill people. People kill people.” In this case I would say “Credit cards don’t bankrupt people. People bankrupt people.” Credit cards may facilitate impulse buying of infomercial music collections but they don’t make you buy them. Alcohol and roommates do.
I personally love credit cards. A single, thin slab of polymerized hydrocarbon that accounts for nearly every purchase I make tucked neatly into a slot in my wallet thereby, ironically, rendering much of said wallet unused. At the mall, in your home, across the country, or across the world, the credit card does everything I want or need without the frustration of carrying currency or cheques or money orders or performing demeaning acts of pleasure. They just might be the greatest commerce tool ever conceived.
Mind you a lot of that statement depends on one’s ability to control their spending. Be it natural wisdom or a hard learned lesson resisting impulse and vanity purchases is key. For some peculiar reason, many people view credit cards as a magical money creation device allowing them to buy whatever they want, whenever they want, regardless of need or, more importantly, actual ability to pay. These are the idiots that have owned every model of iPhone ever put to market fully convinced that an extra half dozen pixels of screen definition is a meaningful improvement, justifying the $700 price tag and the bragging rights. That is until the day when their mother mistakenly texts them a picture of herself revealing all of Victoria’s deepest secrets that was intended for their father who’s away on a business trip. Luckily, the now shattered and regurgitate-soaked iPhone can easily be replaced with a less-likely-to-induce-flashbacks Samsung or Blackberry thanks to, you guessed it, their credit card!
Carrying balances on your credit cards is equally foolhardy. We never carry a balance. Well I should qualify that. We never intentionally carry a balance. Unfortunately it has been known to happen on the very rare occasion that a certain someone in charge of household finances, okay me, pulls the ultimate brain fart and forgets to actually pay the damn visa bill one month. Accidents or emergencies notwithstanding, I’m willing to wager that most people regularly carrying credit card debt are not doing so for base life necessities; shrink appointments after getting the aforementioned text are an admittedly gray area.
Don’t Carry A Balance and Don’t Succumb to Impulse Buys
For the rest of us, the sane minority, credit cards are fabulous. And in my opinion, the very best of all are cash back credit cards. These cards are like a profit sharing program with the banks and credit card companies; a rare instance where the villainous financial industry actually does something beneficial for you.
There are all flavours of rewards available through credit cards but I prefer the cash back just for its versatility. It gives me money and nothing more. I can use that money for whatever I please which is far more convenient and versatile that rewards tied to a specific thing like travel. Besides, I use an air miles collector card whenever possible to earn those not-actually-so-cheap free flight rewards.
I have had several cash back credit cards during the past decade from a couple different Canadian banks. Initially I was careful to get a no fee or low fee cash back card not wanting to eat into my rewards. I was happy with these cards and made a tidy sum each year. But a year ago, while stumbling around some personal finance blogs on the web, I learned of a new cash back credit card with some tantalizing incentives and rates of return despite a hefty annual fee.
That card was the Scotiabank Momentum Visa Infinite cash back card. This card offers a whopping 4% back on the first $25,000 you spend at eligible gas stations and grocery stores, 2% on the first $25,000 you spend at eligible drug stores and 1% on everything else as well as those previously mentioned beyond the $25,000. That, my friends, is some sweet return and generous thresholds.
The annual fee is $99 plus $30 for additional cards all of which are waived in the first year (bingo!). That fee is substantial and normally I shy away from such credit cards unless my employer pays the fees (happened at job which required me to buy and then expense lots of out of office activities) or I’m expecting to rack up a lot of exceptional credit card activity in a particular year like we did when we got married. For my wife and me to each have a card costs $129 a year. At 4% cash back this requires that we spend $3,225 in groceries and/or gas. According to my budget numbers for the past few years, that equates to three months of groceries. Everything else for the entire year is pure profit to us.
And what a profit that turned out to be. We’ve now had this new credit card for a full year. Last week we were treated to $1203.30 being reimbursed to our credit card balance (you can have this money directed to any Scotiabank account but our banking accounts are at RBC). That more than makes up for the $129 in annual fees we pay to have this Visa card; fees I must remind you we did not pay this past year. So we netted the full $1203.30.
Another way to look at that number is that we earned in the first year of having this card enough cash back to cover our annual fees for the next nine years. For most of the next decade all cash back earned will go straight to our pockets. And if we continue with our current spending habits we should get back about $10,000 over that time frame. Considering the ages of our kids’ that is a likely scenario; if anything, we’ll spend more as they grow and cost more to feed, clothe, and entertain. Ten thousand tax free dollars all thanks to the types of people who buy eyelashes for their Volkswagens.
Allow me to break down our spending a bit to show how easy it is to earn this cash back just by living a normal, middle-class family life. We spent $14,124.22 on groceries last year. We are a family of four but our kids are still pretty young so I think our grocery bill is fairly reasonable. I try to mind the sales and what not but I wouldn’t say I’m a penny pincher with food. We also have family visit for a couple weeks each year which cranks up our food purchases. And still we’d have $10,000 more money to spend before being cut back to 1% so I imagine larger families or folks buying lots of organic foods would have plenty room to benefit from the 4% cash back.
We also spent $2,624.14 on gasoline. We don’t drive a lot except when we go camping in the summer and are hauling around a travel trailer. I imagine our gasoline bill is pretty small compared to most families who don’t live within walking distance of school and grocery stores. Undoubtedly there are many of you that could significantly capitalize on the 4% gas cash back; far more than we have.
The point is that if you eat and you drive, both of which earn you 4% cash back, those two regular purchases alone make this card worthwhile. In our case, gas and groceries earned us $669.93 in cash back. Had we used a no fee card or low fee card where we’d only get 1% back, our cash back would have been just $167.48. Even with a $129 annual fee, we’re still ahead $373.45 using the high fee Infinite card. That’s awesome.
And we haven’t even touched all our other regular expenditures. We don’t spend much money on drugs, thankfully, but for those that do this is another potential windfall assuming the illness requiring the drugs hasn’t left you in poverty.
Or perhaps your work offers or requires you to make purchases on behalf of the company and then reimburses you later. My wife had such an opportunity for a company offsite outing which ran up a bill of $13,859 paid in two separate chunks. We were able to absorb that on our card and earned 1% on it which is essentially a $138.60 bonus from work. Or, in other words, that alone would have paid for our annual fee so it’s well worth the sacrifice to put these types of opportunities on our card.
Use Your Cash Back Credit Card for EVERYTHING
I just can’t impress upon you how great a deal this is for those who are able and capable of keeping their wits about them with a credit card burning holes in their pockets. Credit cards cause a lot of people grief but it’s them doing that, not the card. If you don’t carry balances or succumb to ill-conceived spur of the moment purchases, then a cash back credit card should be your commerce tool of choice. Any cash back card is worth your while, but if you can qualify for it then get the high fee Scotiabank Momentum Visa Infinite card. Get it and use it for every purchase allowable.
If you can, pay all your utilities with it. Pay your home and automobile insurance bills with it. Pay your sports and leisure registration fees with it. Buy all your clothes and gifts and school supplies with it. There is almost nowhere you can’t use a credit card these days. If you make a quick stop on the way home from work to pick up a bell pepper that you forgot on grocery day and it costs a paltry $0.99, screw it; put it on your credit card! Use that card like an abused pack mule in the Andes. Use it for EVERYTHING and watch those cash back rewards pile up.
$1200 (or more) is easily attainable and requires doing nothing more than what you were doing already. You can use that windfall to buy your mother some respectable under garments.
I was not paid for this blog post. Nor was I encouraged to. I have no affiliation or relationship with Scotiabank or Visa other than I use their credit card services. Research other cash back cards out there and find one that suits your budget and spending habits best.