My Credit Cards - Rewards Are Rewarding!

I have a small handful of credit cards, and I'd like to talk about my personal experiences with them and which I like best.

The first card I ever had was the USBank College Visa which I applied for after reading an article about credit scores. My parents had never spoken to me about the importance of establishing credit, and it hadn't really occurred to me before then to open a card. A couple of years ago it converted to some sort of rewards card, but the cash back is less than 1%. I use this card about twice a year, just to keep it active. I also recently added my husband as a joint user (not an authorized user, they did a credit check) so that it would extend his credit history as well. We now each have 8 years of perfect credit history from this card, and a nice $17,000 credit limit grown slowly by about $1500 increase every 6 months.

In 2006, I realized I could be earning rewards for my credit card spending! My extended family all lives in South Africa, and we typically flew NWA/KLM airlines to get there, so I opened up a mileage rewards card for that airline with USBank. That has since converted over to the FlexPerks card. Before it converted I managed to get one first class trip to Vegas out of the card - not exactly overseas. Since it's converted, I can also get cash back for my points instead of travel. It equates to 1% cash back, and there are often opportunities for bonus points. You also get double points on cell phone and airline charges. Since the card converted in 2009 I have received $650 in cash back! That has been greatly assisted by bonus points. I have not spent that much money! But if we're ever going on vacation together, I'd be happy to book it and you can pay me back. Going in on a birthday present for someone? Sure, I'll buy, you can write me a check for your half :) I have a nice limit on that card of $16,500.

Worth noting: if you ever pay your USBank credit card a day late, you can call customer service and get the late charge reversed once a year. USBank's customer service is excellent, and I also really like their website. Since I have checking accounts with them, I can have my rewards deposited into my checking account instead of applied to the card. This comes with the additional benefit of a quick turnover - it takes just a few days for the credit to appear on my statement online.

When my husband and I first started dating and I had to start cooking real meals for dinner (I'd be perfectly fine with some steamed asparagus and brie on crackers after having a big lunch, personally) I started shopping at Costco a lot more often. As you're probably aware, Costco only takes American Express or debit cards. Not one to lose out on rewards, I applied for the American Express Blue Cash card. It rewards 5% cash back on gas, groceries, and drugstore purchases. Unfortunately, Costco is not included and is rewarded at the everything else rate of 1.25%. When I first got the card I think this was 1.5%. Again, unfortunately, these rates only apply after you spend $6500 per annum. Until you reach that mark, it's just 1% and .5% respectively. The year that I got married and put our honeymoon on this card, I knocked the $6500 out of the park quickly. After that it made sense to put any purchase I could make with American Express on this card. I've gotten cash rewards twice now: $232.17 and $226.97 applied to my balance. I really loved this card for awhile, but it no longer compares to my....

Fidelity 2% American Express! This is my favorite card. I've been coveting a 2% card for awhile now. You need really great credit to be approved for this card, from what I understand. I initially was after the Schwab 2% Visa, but waited too long and it no longer exists. Luckily, this card is still around. I opened a Roth IRA with Fidelity and I now make every purchase I can with this card. The 2% really adds up quickly, and overall works out better than the Blue Cash card because there is no limit you have to reach first. It is also gets the same rewards rate at Costco, which is a good chunk of my monthly bills. The rewards are redeemed in increments of $50 and deposited straight into my Roth IRA. So far I have redeemed $200. Again, this is thanks in part to booking the flights and hotels for a recent trip with my siblings who then reimbursed me for their parts.

In looking up the Fidelity 2% American Express online so that I could link to it, I just noticed that they also now have a Visa Rewards Card! While my 2% American Express is great, as you may know, American Express is not accepted everywhere. Sometimes I have no choice to put purchases on my FlexPerks Visa for just 1% rewards. It looks like this Fidelity Visa offers 1.5% on purchases up to $15,000 a year, and 2% after that! I'm going to do some more research, but I think I might have to apply for this.

I have a couple of other cards that I don't really use. One is an Alliant Credit Union Visa for $2500. I have accounts with them with great rates, and since they pull credit when opening a simple checking or savings account it made sense to accept a credit card offer at the same time. I've never charged anything to it though. I also have a Chase card with a $2500 limit that I opened with my sister in law back when it was Washington Mutual. This was mostly to do her a favor in meeting her goals, but I also used the balance transfer offer which I paid off over the next year. It gave me some breathing room on other bills, but for a 3% fee I'm not sure if it was worth it. I never had any problems with it, but don't have a whole lot of experience with it either.

During the credit repair process, when my husband's credit finally reached 650 we applied for a Bank of America credit card in his name. I had read a lot on MyFico about the 99/500 offer. Basically, we applied for a card we knew he'd be declined for, but were countered with an offer for a $500 secured card where you only had to actually put $99 down. The card was then supposed to convert to unsecured after 9 months of good payments. Unfortunately, the economy changed drastically during that time. He's had the card since December 2008, but it has never converted. It also comes with a $29 annual fee.

I have added him to my USBank card and Blue Cash card, so the purpose of the BOA card (to establish credit) is no longer terribly relevant. If you're trying to reestablish your credit and don't have any other options, I would recommend this card. For our financial position now, though, I don't think paying the annual fee makes sense any more. It will still appear on his credit for 10 years after we close it, and it's not the oldest card appearing on his credit report. We've just paid the annual fee, so maybe we'll leave it alone for the next year, but I think we'll close the card before they charge us another $29.

Those are all my credit card experiences, and over $1300 in rewards in the past 2 years! If you can get them, I highly recommend the Fidelity Rewards cards. Between their American Express and Visa you should be set, and it's really fun playing with the calculator they have here in the upper right hand corner. If I spend $20,000 a year and invest the $400 in rewards at a rate of 7% until retirement in about 35 years, it becomes $57,788! Since I pay my entire statement balance and never owe interest, that truly is free money for me. Amazing!

Roth IRA

In high school I was lucky enough to have a brilliant physics teacher. I was especially lucky because he had actually retired the year before. He then took one look at his finances and returned to work part time. The first day of class he didn't say a word about physics. Instead he talked about Roth IRAs and told us all to start one as soon as possible and max it our contribution as often as possible. I have no idea why a man so brilliant at math, and certainly smart enough to realize in his golden years how beneficial a Roth IRA would have been, didn't think about his financial future earlier. My 16 year old sat there smug in the knowledge that I already had a Roth IRA, started by my father. When I took over my finances, the contributions stopped.

Why are our past selves so stupid??

I recently rectified this situation. I was interested in applying for the Fidelity 2% Rewards Card. The rewards are deposited into a Fidelity account, something I didn't have. I knew we needed to start working on some Roth retirement savings, so my husband and I each opened a Roth IRA with Fidelity and I applied for the card and attached it to my Roth. I was pleased to see that Fidelity's trades are also $7.95 rather than the $8.95 I pay in my Schwab account. The Roth IRAs are fee free with a minimum opening deposit of $2500 OR minimum monthly contributions of $200. We set up monthly contributions of $500 each. The first contribution was set up for July, so we would each reach the $5000 maximum for 2010 by the required date of April 2011.

I thought the max contribution would go up to $6000 for 2011, so again we were set up perfectly to reach it by April 2012. Unfortunately, it remained at $5000 so we are actually set to reach the max by February 2012. Thanks in part to the rewards card, I'm hoping to speed that up a bit and make all of our 2011 contributions by December. By contributing as early as possible, we set ourselves up for the most compound interest possible, and this well help make up some ground lost by the max limit not going up.

I read an interesting article on Get Rich Slowly recently about building up an emergency fund even if you don't think you can afford it. I would add that you can also look at your Roth IRA as a part of your emergency fund since you can withdraw contributions penalty free - just not earnings. Although we certainly don't want to ever touch our retirement savings, in the case of an extreme financial emergency, we could withdraw from it. We don't have much additional cash in savings accounts - and I don't really want too much of our money sitting around earning a max of 1.3% - but by the end of 2011 we'll have $20,000 plus earnings sitting in our two Roth IRA accounts. That's enough money to make me feel fairly secure about being laid off, emergency medical bills, etc. and is also a great start to our retirement savings.

So here's to my old teacher. He was one of the very best I ever had. It may have taken me 10 years to really start listening, but I am now.

401K Match Slashed In Half

I did some analysis of my husband's 401K performance a couple of days ago, and made some estimates about where it will be a few years from now and by retirement. I played around with changing his contribution level, and even took a look at what we could expect if we maxed out the contribution limit. No idea where that money would come from, but hey, wouldn't it be nice? I had no sooner finished reading this article about retirement plans getting changed up on you (and not in a good way) when I returned home to find a letter from my husband's company saying as nonchalantly as possible that his 401K match of 4% was being dropped to 2%.

Poop.

I suppose my fantasies of him getting another raise at his annual review this month are a touch optimistic, too. Come to think of it, annual reviews haven't even been scheduled yet. Perhaps management is avoiding some awkward conversations.

It's definitely not all bad. I know a lot of companies lowered matches a long time ago, or have even cancelled them altogether. His company has been very generous, and they continue to offer a very good benefits package. On the other hand, he hasn't gotten more than 10 hours in since the holidays so things can't be looking that good. He works as a superintendent in the construction industry, so slow winters are pretty par for the course. I'm withholding my panic about unemployment and job searching for now. At the moment I just want to get through the slow period and decide if we should bump his contribution up 2% to cover the difference between this year and last year.

I had already been thinking about upping his contribution last year. Ultimately I didn't pull the trigger because we took a somewhat ridiculously expensive vacation to spend the holidays with my extended family overseas and I realized the "extra" money I think he could stand to save each month had pretty much been eaten up by that last year. I think we will use this change at the company to motivate us to increase the contribution this year, even if it's just by 2%. The great thing about the pretax status of 401K contributions is that we'll barely feel a 2% increase. And if the economy turns around and his company brings back their 4% match, we'll be sitting at a 10% total without his paycheck changing at all. Maybe one day we'll even be able to get close to that max!

Here's to a better 2011!