In Part 3 we left talking about how to make up for the $57 left to achieve a monthly passive $100. One thing I realized recently is that while we didn’t have any credit card debt (we pay our balance in full every month) we were still losing money using them. “How can that be?”, you might be asking. We’re not carrying a balance, so that means we’re not paying interest. In fact, we’re actually getting money back in some cases via rewards. So, how are we losing money?
Let’s first talk about the rewards game. Credit card rewards are fantastic when correctly applied. Just because you’re getting rewards back doesn’t mean you’re making good financial decisions to obtain them or good financial decisions when you use them. Let me explain with an example. I have a Visa Amazon Rewards card that offers 5% back on qualified Amazon purchases (*as a Prime member, don’t forget to factor in the yearly fee, although you do get more services with that so…), 2% back at certain restaurants, gas stations and drug stores and 1% back on everything else. Now, that being said it is very important we state one thing; none of that % back means anything if I carry a balance. I cannot stress this enough. It’s simple math. I am on the low end of the scale according to Chase (who knows how true that is) and my APR is ~15%. So, if I’m getting “rewards” at 5% back in the best case scenario and I carry a balance month to month that 5% back means nothing. Sure, it brings down my APR but in the end the credit card company is still taking money from me in the form of interest and I am paying more than whatever I am being charged for my actual purchase; purchase price + interest – rewards is still > purchase price alone so don’t be fooled by “money back” gimmicks if you’re not planning on paying your balance in full every month.
So, all that being said, back to the original question; how am I losing money if I’m not carrying a balance on my credit cards? The biggest way I’m losing money is by misusing the card that I have. I currently carry the aforementioned Amazon rewards card. It’s great for Amazon purchases at 5% back for qualified purchases. Amazon purchases are not a very big expense for me relatively. Can you guess what our family’s biggest expense is? If you have a family of four also you probably guessed correctly; it’s groceries. Aside from our mortgage, groceries is by far our biggest expense every month and it’s a very close second. I’m talking in the neighborhood of $1200.00 per month. Now the elephant in the room here is, “why are we spending so much on food?”. I’d like to lower this expense and believe me we have, but one thing at a time. Right now it’s high time to properly buy groceries.
If you search online for “cash back card groceries” you’ll get some great results. One such card I found that was a great fit for us was the Blue Cash Preferred Card from Amex. (You can check out the link, I don’t get any referral fee’s from Amex so my review here is completely unbiased) What I liked best about this card was it offers 6% cash back on groceries up to $6000 in purchases then 1% after that. 6% back on purchases up to $6k, which we easily spend as a family of four, is $360 back. Thats an extra $30 per month on average!! That’s a huge leap towards the goal!
With an average of $30 back per month we only have $27 more to make up. Piece of cake! Stay tuned, more rewards coming in part 5!