Anonymous Says No To $350
Or, How To Miss Out On $29.20 a Month By Not Using Credit Cards
I recently listed 8 reasons to use a Credit Card which caused someone under the bravery of 'Anonymous' to call my advice crappy.
I understand that Credit Cards can be trouble for some people and I have no problem with people disagreeing with me. I did however take issue with these two segments of his response:
Why not keep the money in a high interest account and transfer it online,free, to your checking account as needed. problem solved
Rewards,benefits. Virtually useless. For most people the rewards/benefits do not outweigh the risks with credit cards
Great idea! And if one wasn't using a Credit Card at all, I'd agree. However, I found the line 'Virtually useless' rather suspect. I decided to run an analysis and see for myself (and for you, dear reader) what exactly is the financial benefit of using a Credit Card in the manner I use it.
Remember, our financial plan says to use the Credit Card wherever possible (and to pay it off on time, every time).
My analysis involves the following three scenarios:
Scenarios Under Analysis
Checking Account Only
- One 0% interest, $0 fees checking account
- Salary goes in, checks come out
Checking Account and a 3% APY Savings Account
- Salary goes into Savings
- Money is transfer ed over as needed
3% APY Savings Account, 1% Cash Back Credit Card
- Salary goes into Savings
- All expenses go onto Credit Card
- Credit Card is paid off at the end of the month
With a monthly salary of $3,013.26 and monthly expenses of $2,187.50 using a 1% cash back credit card and a 3% APY savings account I will make $29.20 more a month than if I were just using a checking account. I will make you $24.96 more a month than if you I were using a checking and savings account (but no Credit Card).
See the whole sheet for a more detailed look including assumptions I made to simplify the calculations.
Table: Monthly Difference Between the Three Scenarios
|Blog Sized Excerpt||Checking Only||Checking and Savings||Savings and Credit Card|
|Vs. Checking Only||$0.00||$4.24||$29.20|
|Vs. Checking and Savings||-$4.24||$0.00||$24.96|
|Vs. Savings and Credit||-$29.20||-$24.96||$0.00|
A Partial List of Flaws
- Not everything can be paid for with a Credit Card.
- Expenses aren't actually evenly distributed throughout the month
- It is possible to get an interest bearing checking account
- Using multiple savings accounts will give you finer grained control over transfers to the checking account
- Some people really really really hate credit cards, so this won't work for them
- Some limitations may apply to 1% cash back purchases
- Carrying a balance even once will wipe out months of returns
I stick with my recommendation to use a Credit Card. I realize that my numbers are rough estimates, but I believe that they are strong enough and close enough to show that there is a clear financial benefit to using a Credit Card.
Using a Credit Card isn't for everyone, and I respect that, but just because they don't work for you doesn't magically make them crappy for everyone.