Manage Your Cash with a Cash Back Credit Card
Last week I had a friend contact me about the best way to finance improvements to a home he and his wife were considering purchasing. Knowing that I have a mortgage background and that we promote reward credit cards; naturally he called me for advice in this matter. We discussed a number of scenarios and ways he could finance the improvements including: paying cash, taking out a home equity loan, and using a cash back reward credit card. After discussing the advantages and disadvantages of each scenario, we decided that he should finance the improvements with a cash back credit card that has a zero percent introductory rate for twelve months.
I understand that not all will agree with me, but I accept that and readers can take what they want or don’t want from my articles. Now my friend’s situation may be unique in comparison to most, but I hope that by sharing this information, readers like you may be able to gain a new perspective or different insight. The two most important items to understand about my friend’s situation is that they have the ability to pay cash for the improvements and they save over $600 per month. My primary concern when it comes to money is liquidity or how quickly I can get the money in case of an emergency or other situation. If my friend were to pay for the improvements in cash, along with the required closing costs associated with their mortgage loan, it would deplete their savings to half of what it is now - something he is not entirely comfortable with.
Using a cash back credit card would give him the most flexibility in managing his cash several different ways, the most important being that he still has access to all of his savings. First, he doesn’t spend any money he already has in savings and earns cash back on every purchase he makes. Depending on which card he chooses, his cash back rebate will be between one and five percent on each purchase. Next, he has a credit card that has zero percent for twelve months with only a minimum payment due each month. That minimum payment could be paid with a portion of or all of the money he saves every month. Realistically, he could pay off the entire balance within or before the introductory period if he paid the full savings amount each month towards the balance. And finally, if something did happen where he needed to pay off the card, he could do so at any time because he has all the cash in savings already.
Using this method to manage his cash it would allow my friend to maintain all of his existing savings, earn more cash with the rebates on purchases, spread his payments out over time, and even still save some money each month. Add all that up and you get to manage your cash with the way you want to. Next time you go to make a large purchase, consider your situation carefully to determine if using a cash back credit card can help you achieve the most with your money.
