Monday, 30 January 2012

Cash Back Credit Cards

I do not think that enough people are fully aware of what a tremendous way to make money that their credit cards are.On most personal finance sites you will read about people who misused their credit cards and ended up with tens of thousands of dollars in debt. These are the only stories that get told to students though.

I know in high school that I had two teachers who thought they were doing their students a favour by trying to educate us a bit about real life concerns and gave their opinions on credit cards. My English teacher gave us one commonly heard side of the story. He told us that we should apply and get a credit card as soon as we could and use it for small amounts and be sure to pay it off fully every month. He wanted us to know that when we would inevitably go into a bank for a loan that if we had a credit history of paying off the balance of our card each month we would be more likely to be approved. In his thinking, right or wrong, a credit rating was very important and we should start building ours as soon as possible.

Having heard this I thought I would try to show off my impressive knowledge and tell my economics teacher how I was going to get a credit card and use it wisely (I was a dumb kid and I think I stretched the link between that day's lesson and credit cards). She laughed at me.She said that she had seen too many of her friends and classmates from university bury themselves in very high interest debt to think that was a good idea. She took the pessimistic stance that a 17 year old kid will not be able to control themselves when they have such easy access to great amounts of money all the time.

And from what I have read and heard elsewhere, neither of my teachers were explicitly correct or incorrect. I have lots of sources to see that it is important to build a good credit rating for a variety of reasons, and I am just now seeing first hand the damage that an improper attitude towards credit can do to students in particular. Luckily I have not seen any students here badly abusing their plastic, but I can't say that I would do some of the things that my classmates have.

I got a line of credit from TD instead of applying for OSAP, mostly because of the convenience. but when I was in the branch to apply for the line of credit, I got the idea to also get my first credit card. TD has one student card, or at least only gave me one option. But there did not appear to be any downside to the card. My TD Rebate Rewards Visa card had no annual fee, a $1,000 limit and a 19.99% interest rate. That last part hurt but I made the good intentioned plan of not carrying a balance so I could avoid the interest. My dad was most pleased with the limit on the card, since he had to cosign for it. In his mind, no matter how dumb I was, I could only spend $1,000, after which I would probably get a stern talking to and more. But I liked the idea of Visa giving me money to use the card.

This card offers 0.5% cash back on the first $3,000 you spend, and then 1% on all purchases above that. So since I got the card in August I have used it for every purchase I can. I use to pay cash for everything, but now I also ask if where I am takes Visa. The rewards balance got added to my January statement. So I saw how much the idea paid off. I got $16.08 simply for making purchases I would have made anyway. I thought this was awesome. I used the card at restaurants, online, at the bookstore, everywhere. It only made sense, I save up to 1% on any purchase I make.

I am usually the only one when we go out in a group who pays with Visa, though I know for a fact that some of the others have a card. I know though that I am more disciplined, I only use the card if I know that I have enough in chequing, or can get the money before the end of the month. This allows me to pay no interest while enjoying the benefits of the program. If you told people they could pay 1% less for everything they buy, not one person would say no. So why isn't everybody taking advantage when the people who usually ruthlessly take your money (credit card companies with their insane rates) are willing to give you money?

Some people may not have the self control, which is unfortunate. There is nothing you can do if you do not trust yourself. But I think a lot of people suffer from ignorance on the matter. I made $16 in four months, so I know it is real. And I just passed the threshold so if I had had more time I would have been getting 1% back. But when I do the math, this means that I spent $3,108 in those four months. Now I did use the card for books and a part of my tuition, but I still spent a lot more money than I wanted to, and than I should have. But it was money i was going to spend whether I had a credit card or not, I am very aware that I have to have the money to make the purchase or else it will end up costing me hundreds of dollars more than the retail price.

Using a rewards credit card is another great way to get something back for things you need to do anyway, in this case spend money. And after looking around my card is not even the most generous in terms of cash back, so the possibilities are even more impressive than I can attest to.

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