I have been going through and working on my annual budget as well as my monthly budget and saw an offer on Mint.com for the Chase Freedom Unlimited Credit Card with 1.5% cash back and an intro bonus of $150.
It peaked my interest to see what I was missing out on since I hear from many other people that they have a card for the cash back that they earn. I was thinking I would dissect the offer as it pertains to my last year of spending and see how much I would make from taking advantage of an offer like this.
Pros:
I Would Get Money Back
This one is kinda generic, but it's still true. I would make a little money on this deal from what I'm already spending each month.
Only have to use one card
Right now, my wife and I have it set up so that we have a main checking account card for normal purchases that happen every month. Then, we also have a second checking account that we call our "Sinking Fund" account.
This account is where we transfer money from the main checking each month to cover expenses that we've deemed non-monthly expenses. This includes:
- Home Repair
- Auto Maintenance
- Association Dues (ours are due yearly)
- Auto Insurance (we pay ours bi-annually or yearly depending on the deal)
- Gifts
- Vacation
- Dry Cleaning/Clothes/Haircuts
- Entertainment
- Baby Sitting
If we got this card, we would end up using one card to maximize the rewards. This could be a good thing, since we wouldn't have to pay as much attention to what we are purchasing with which card anymore.
Cons:
Gamification of your spending to earn more rewards
Have you ever been a gamer? You are always looking to get to the "next level" to earn the higher reward. I would say that this is exactly what they are trying to do to get you to earn more rewards. I know that I, personally, might be more tempted to purchase more so that I can get more back. Even though this reward system means that for every $1 I spend, I'm basically saving $0.015. As you can see, I'd have to spend quite a bit to make this add up to be beneficial.
Results are minute for the amount of money you're spending
As you will see with my theoretical results below, the savings are probably not there to justify the risk I'd be taking with using a credit card to get the rewards back. The credit card companies know this, and they are constantly tweaking their system in order to pull enough people in with an attractive enough offer without giving away as much. I'm not much into letting a credit card company dictate my spending habits.
Overcomplicates purchasing strategy if you use sinking funds
As I said above, we use 2 checking accounts for our purchases monthly. I think that sorting through these transactions all together would make it a little more cumbersome to divide out what I've spent on my sinking funds compared to my main checking account.
Could result in penalties that could wipe out your rewards
Looking into their fine print, my APR could end up at between around 15%-25% interest if I don't meet their terms. So, if I don't pay in full each month, I'm looking at getting smacked with between 15-25% interest to try to earn a measely 1.5%. Not sounding like such a great deal to me anymore.
And if you're just thinking that you would just move to another card, think about all the different things you might have to change to maximize the benefits. All the accounts would need the new card that you're switching to to pay your bills. You wouldn't want to get caught not having something in correctly and get smacked with a late fee from a bill because you posted the purchase on the wrong card.
Card rewards could change at any time
If I'm baking these rewards into my budget going forward, I may be in for an upset. Since they can change their terms at just about anytime they'd like, I might not earn as much as I thought I would later on. When I started out with my bank, my debit cards paid cash back on purchases. They have since taken that away and only give it to the credit card holders. What's to say that as I hold the card, they don't reduce the 1.5% down to 0.5% or cut it later down the road?
My Theoretical Results:
So, this is the part where I'm going to divulge my numbers about what I'd see as a result. I'm sure everyone's spending habits are different and you might come out with a bigger reward. I'm just trying to show how it doesn't really make sense in my situation.
Money I've spent that would qualify: $14,580
Rewards (intro bonus + 1.5% cash back): $150 + $222.88 = $372.88
Is it worth it?
Looking at my family's spending patterns and my system with my two checking accounts, I can't see how combining those two accounts into one spending account that I have to reconcile each month and make an additional payment to can be worth about $375. And it's only $375 for the first year. I would only be seeing about $220 each year thereafter. I saved more than that by shopping my auto and home insurance recently!
What do you think? Is it worth it to take on these cons to opening up a Chase Freedom Unlimited card?
This seems pretty incompatible with how you guys handle your money.
It works for us because our sinking funds are controlled in Mint using the rollover feature, but all the money still “lives” in our single checking account. And we aren’t prone to the gamification factor. We have it auto-paid in full every month, so we also don’t have to worry about paying fees.
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Yeah I can see how I could make it work, but I don’t know if the $400 a year is worth the extra headache for all the extra transactions. As long as you aren’t being sucked into their gimmick, you should be good.
Hey Steve, Have you looked how much benefit you would get just from part of your spending on a cashback credit card? We now put all our food and fuel shopping (plus a few other items) on a cashback credit card. We ignore the fact that it has cash back and use it as we would a debit card. We remember that going without something makes more financial sense than buying to get cashback. And we have an automatic payment to repay the balance in full every month. Ours makes us around £100 per year. I don’t bake this into the budget, so it’s just an extra savings top up, for not too much work. 🙂
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Well, when I did the analysis, I looked back at all my statements from the past 12 months and this included some of our grocery spending. We like to take cash out for groceries/eating out, but don’t always do it. This would definitely include our fuel though and with my recent switch to becoming a stay at home dad, this should even go down more over the next year. We need to get back to having cash for food though, because I know our spending ends up being higher when we don’t take the money out for whatever reason, probably because we aren’t paying as much attention to totals until we go back and look at our spending in hindsight.
£100 per year is not bad for not having to do anything extra other than making a monthly payment to the card company, especially if you aren’t getting tied into their system of trying to spend to earn more.
I’ve often suggested something similar- just use the cashback card for fixed monthly bills. Again, you still get some points and you still maintain your credit score (which matters even if you don’t ever plan on taking on debt- http://penniesanddollars.com/magic-credit-score/). The nice thing about only using it for fixed monthly bills is that your monthly balance and payoff amount never changes, and your credit card won’t tempt you to spend more. It also simplifies your budgeting/expense recording since you’re essentially bundle several monthly expenses into one.
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This would be a great pro to add to the list! I use online billpay for most of my bills currently. I would have to look through my bills to see which ones I’d be able to pay with a credit card without having a fee to do it as well. I guess I could see this having some benefit! Thanks for the addon suggestion to Sarah’s!
Hi Steven,
Nice post! This is my first visit to your blog.
#1 I ‘m very objective with my spending. Any spending occurs only if it is justified and required. Whether I pay by credit card or cash is not going to make any difference.
#2 I don’t spend a penny just to earn a reward or cash back.
#3 I put all my reoccurring expenses (that I spend anyways credit card or no credit card) on to my cash back credit card.
#3 I am disciplined about paying my credit card balances in full each month.
Having said that, there are two credit cards that I like that offer 2% cash back on all purchases with no annual fee – Fidelity Rewards Signature Visa Card and Citi Double Cash Card.
If you can do these things, you cash back is FREE MONEY. It makes absolute sense to earn your cash back every single year.
If you have concerns that you might overspend, then that is totally different story all together. In that case, you should refrain.
–Michael
Thanks for visiting and commenting here Michael, happy to have your insight! Very interesting points, I would say people need to know themselves well enough to answer the question. Thanks for the suggestions of the better cash back card offers. I wasn’t really shopping around for one, I was merely reflecting on a rabbit hole I chased down.
If you spend enough and have the discipline to pay it off each month without fail, I still like a good cash-back card. I’m currently using a Mariott Rewards card for points, but have it on my to-do list to switch over to a 2% cash back card. Hopefully before the end of the year.
Thanks for sharing your approach and rationale!
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Hey Jon! Thanks for stopping by and commenting! Yeah, you can win over time with a cash back card AS LONG AS everything goes according to plan and you have to know yourself pretty well for that. Thanks for your input as well!
I just ripped up my newest credit card offer from Discover. It is around my 3rd or 4th this week and alone. I have two rewards cards. One is for airline miles and the other one is in can redeem for hotels, car rentals or cash on my balance.
The card I use the most? The and airline miles. So to answer the question, do I see it being worth it? For me personally, no
Jennifer, that is great news! Actually, the day I posted this, my wife and I actually received an offer from Citibank for an airlines card each promising like 50,000 points per card. It’s amazing how many offers are out there. Thanks for commenting and visiting!
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I personally travel a lot so the Chase Sapphire Reserve is my go to. I calculated and its basically worth about 3.7% cash back based on the estimated flight cost comparison. So if you travel a lot the Chase travel cards (Sapphire, Southwest etc.) are a lot better ROI than 2% cash back cards. For me it’s a no brainer. HOWEVER – the Fidelity card that gives 2% back and deposits it into an investment account is the best cash back card option I have seen – esp. if you invest that 2% in an index fund or any cash producing stock.
That’s great that you are getting about 3.7%. We rarely travel and our expenses are minimal I guess. I didn’t know about the Fidelity card, that’s a nice switch that could help people save as well! Thanks for stopping by and reading/commenting!
I do like the perks like these, and yep I take advantage of them. I saw the comment of using it like a debit card, that makes sense.
Hi Rosey, I think the value of the perks to each person is relative to where you are on your financial journey as well. If you feel that you can take advantage of them and not have to worry about the interest and being able to keep it under control, the extra money can really help out. Thanks for taking the time to read and respond!
Yes Steven, it’s a bit tricky situation! I think you can take out such a credit card but be careful to repay the balance at the end of every billing cycle. One way to do is that set aside the amount for which you’re swiping your card. Doing so, you can enjoy the rewards without racking up huge interest charges. And, do not use it just for getting the cash back. What you can do is, use this card for purchasing everything. But, be sure to REPAY BALANCE AT EVERY BILLING CYCLE! That’s the secret of enjoying a cash back card.
Yeah, if you’re going to be responsible with a credit card, you’ll be fine. But the credit card companies are just waiting for that slip up or that bigger emergency to happen where you lean on them to fix the problem.
As long as you have money set aside to pay for it and are only spending money you actually have, you should be in good shape.
I just didn’t find the offer worth my while as others have. Thanks for stopping by and reading/commenting!
Steven, thanks for writing about this. I love the thought of cash-back credit cards – I feel like it’s free money (almost as free as a 401k match). I’m on that side of the fence I guess you could say.
However, I love hearing the other side of the story. Your analysis is great. All of us can achieve similar goals through different means. Even if we don’t do it the same way, these alternative viewpoints may slowly influence our lives for the better. We might not even know when it happens.
All of the comments here are great, too. Great discussion.
My suggestion is to do the Citi 2% double cash back card instead. Same concept, higher rewards.
I just thought of doing this post because that was what was showing up in my feed… but I think my decision would still be the same… we’d only see an additional 0.5% increase in the rewards, which still aren’t worth changing my spending habits for.
I use credit cards for everything! There are some advantages to credit cards, like extended warranties and better fraud protection that you don’t get with a debit card. If you travel, you can often get insurance for your car rental, access to various airport lounges, or here’s one that recently came in handy: help tracking your lost luggage.
Also, to help guard against the cash back/rewards level changing, I typically cash them in immediately – each month if possible. It may be only $10-50 a month, but I just apply it to my bill. I don’t let them accumulate.
It does require discipline to make sure that you can pay everything off at the end of the month, but that seems to already be up your wheelhouse.
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The fraud protection is the same as long as you’re using the card as credit, since it would still be protected by visa or MasterCard.
I have auto insurance that includes my rental vehicles, so no worries there…
I’m glad it’s working for you, I just have found that keeping ourselves cash rich, we’ve been able to stay away from them and won’t fall into that trap if things ever get tight!