Great Idea for Getting More from Your Rewards Credit Card

Here's a creative idea for how to make even more money from the use of your credit cards (left as a comment here recently):

Just an idea for using cards: my wife has terrible teeth (she brushes, flosses and uses fluoride twice a day, so I have no idea how) and is always getting mondo-expensive work done. We make sure her dentist accepts AMEX and use the Blue cash card for it! Instant rebates! Better yet, you then submit the expense to the flexible spending account, basically making an additional amount equal to your tax bracket!

Excellent idea! I always pay my medical costs directly from our HSA checking account, but why not simply pay with a credit card and then reimburse yourself from the HSA? Sounds like a great way to squeeze out even more credit card rewards.

Comments

[rwh]

I have a question about investor psychology. We have a rewards card that pays 1% up to a certain amount each month and then 2% above that. We set up as many of our regular bills as we could to be charged to our credit card (cell phone, satellite TV, life insurance etc). We also use the card for routine purchases such as gas for the car.

But we also have the credit union checking account that pays 5.5% and requires 12 debits/month. We don't have any trouble reaching that requirement, but we still hesitate to put too many charges on the credit card.

Clearly, as long as we meet the minimum requirement to get our 5.5% on the checking account, we should use the credit card as much as possible to obtain more rewards, but even though we pay the balance each month I don't like running up a big bill, and I worry that our spending will increase out of both accounts; the credit card to increase rewards and the checking account because we now keep such a large balance.

So far I don't think we have increased our spending because of this, but I know how psychology influences how we manage our money.

Does anyone else share these concerns?

["Mo" Money]

Studies show that when you use plastic, you tend to spend 17% more than if you use cash. Cash is harder to pry out of your hands than using a credit card.

[Kevin]

rwh - I've been worried about that recently as well after a couple higher-than-normal credit card bills. But we've had some unusual things occur in those months, not to mention we have a baby and I'm still not used to the increased costs associated, so perhaps it is just an anomaly. We have started taking out cash on the weekends to budget ourselves when we eat out, but other than that we are not adjusting behavior too much, but we are pretty frugal to begin with.

Re: Mo's comment, I find myself more willing to spend a couple bucks cash here and there (Starbucks, etc) and consequently burn through it faster, than to constantly swipe my credit card, so perhaps I work in reverse.

[kitty]

"Mo" Money - the studies talk about averages, and averages can be very misleading. "This desease affects mostly men in their 50s. There are two known cases - a 2 year old boy and a 98 year old man". Take 10 people where one person spends 100% more and 9 people spend the same, and you'll get "people spend 10% more of average". What is missing in these studies is distribution i.e. what percentage of people spent more, how much more, how this correlates with people who pay their balances in full vs those that carry balances.

We know that many people carry balances and, therefore, spend more than they can comfortably repay in full at the end of the month. These people obviously spend more with cards than they would've otherwise - simply because they don't have enough money to spend the same amount with cash. Some of them spend a lot more. When these additional money spent get divided by everyone in the study, you get "people spend more on average".

As of yet, I haven't seen a single study that specifically looked at people who always pay their balances in full within the grace period. I would doubt you could find one.

Additionally, none of these studies were rigorous scientific studies that passed much scrutiny. For example, one study looked at a veyr specific group - college students which for the most part have little money and less experience than others. Or purchases - but people often use cards for larger expenses and cash for small expenses. Or they looked at sales at some fast food place after the place started taking cards. But it is quite possible that some new customers of this fast food place used to spend the same amount of money elsewhere.

So this statistics is really very questionable. As to "cash being harder to pry out of your hands" - this is based on how you personally feel. For me, money is money. I have to pay for it anyway, regardless if I pay with cash or card, and the idea of looking at a large bill is far less pleasant than the idea of spending cash for one item. Different people are different.