Since 2007 credit card companies made a lot from my ignorance and irresponsibility.
It’s time to turn the tide around.
Fresh out of college, and into the workforce, I received my first credit card. The excitement I felt was the same as when I got my driver’s license. I can now buy anything I want. Deep in my heart, I’m shouting “FREEDOM!” Little did I know it was my first step inside the debt prison.
I’m a prisoner for 9 years. Only two years ago when my wife and I were able to completely killed eight credit cards. It’s blood, sweat, and tears, but the sense of accomplishment is incomparable. I’m convinced, one of the best gifts we can give our children, not to mention to ourselves, is to be debt free.
Make money while you spend
Because it gave me a lot of money problems, I thought I am done with credit cards. But instead, I learned I can make them work for me. Like a lion or a bear, there’s a way to tame a credit card. This beast can give us the power to make money while we spend.
I did a ritual when I finally decided to part ways with my cards. If there’s a ribbon cutting at the grand opening of a store, I had a plastic cutting. It commemorates the milestone we achieved as a family in our financial journey. There’s a high level of satisfaction when you shout “REAL FREEDOM!” after you cut those cards in half.
It’s during the ritual when I found out I can make use one of my cards to our benefit. Good thing, I did a second look at the statements to ensure I didn’t miss anything before the slice. As I review the last card to destroy, I saw I had earned 8,000 reward points. Curious, I called the bank to inquire. 8,000 looks big to let it go to waste.
Use reward points to pay for the balance
I learned I can spend the points to buy airline tickets or to pay the credit card bill. I don’t travel much so I’m more interested in the cash back. She said 8,000 points will cut-off P500 from the bill. Then my brain starts to compute.
Turns out, to earn 8,000 points, you need to spend P200,000; Each point costs P25.
In essence: Spend P200,000, get P500 cashback. I can understand people who won’t bother for such a small amount. But to me P500 is P500. It’s better than nothing.
Daddies, spending will always be part of our life. To provide for the family is the highlighted part of our job description. We will continue to buy stuff and pay for services as long as we live. Isn’t it smart to make a few bucks while we spend? It may be small at first, but it will make a huge difference in the long run.
A savings account pays when you save. Credit cards reward you when you spend
A normal savings account will give you 0.25% when you save. A credit card gives you the same rate when you spend.
A word of caution: What we learned so far do not apply to all credit cards, and most especially not to all people.
My last standing credit card is from Maybank. It’s from their program where I base all I shared up to now. Better to review your credit card’s mechanics to see if your provider has a cashback plan. One important requirement is to make sure your card doesn’t have an annual fee. If it does, call your provider if they can waive it for you. If not, you know what to do. Slice it!
But you need discipline
For dads who wish to use their credit card for this purpose, do it at your own risk. Only the disciplined can enjoy this perk. If you are not confident with yourself enough, you shouldn’t own a credit card in the first place — Because the credit card might own you instead.
Self-discipline is the heart and soul of this program.
First, watch out for the temptation to spend for the sake of earning points. It’d be silly if this program made us spend P3,000 more than our usual budget so we can earn the cash back faster. To benefit, we must incorporate it with our current lifestyle.
Second, pay the credit card bill on time and in full. Late payment costs P500. Moreover, a 3% finance charge will apply to the unpaid amount. We don’t want that since our goal is to make money, not to spend more.
Make a plan
I’m not good at remembering things so I usually pay my credit card bill 3 days in advance. I do this by making a recurring event in my calendar which says “Pay Credit Card.” And to ensure I can pay my bill in full, I treat every swipe as a cash transaction. I use the envelope system. Every time I paid something with my card, I put the same amount of money inside the envelope. With this approach, I don’t dread the upcoming payday since I already set aside the fund for it.
Now when I finally reach 8,000 points, I’d call the bank to use those points to take off P500 from the current balance. To me, the cashback I got is a form of income. I would transfer P500 from my “credit card payment” envelope to my “income” envelope.
In reality, the P500 cashback is only a bonus. What profits me most is the financial discipline I developed throughout the process. I hope you will benefit from it too.
In a nutshell
You can make money while you spend using your credit card’s cash back feature.
- Be sure it has no annual fee.
- Pay the balance in full and on time. — Or better yet, in advance!
- Don’t spend for the sake of points!