YNAB BLOG

How to Flush Half a Million Credit Card Points Down the Toilet

Small business owners may have a similar problem.

I run virtually all of our business expenses through a single credit card (well, now two cards, but you’ll see why in a moment).  YNAB has run-of-the-mill expenses for everything from servers, to remote Mac hosting, to our customer support and emailing system.  We also run ads on various networks that contribute positively to the bottom line.

This single credit card ends up with tens of thousands of dollars of spending on it each month.  That spend is paid in full, the cycle continues, and points are accumulated. Lots of points.

When I first set up the card years ago, I elected to go with a Chase Amazon Business Visa.  It gives me three points for dollars spent at Amazon, two points for dining and eating out, and one point for everything else.  Or something close to that at least.

These points aren’t cash. They aren’t on the budget. They’re “free,” and recently I came to the realization that I was not “stress testing” these points purchases much at all.

Amazon, those sneaky devils, makes it very easy to spend my points. When I’m checking out, they’ll ask me, “Want to just use your points, you savvy shopper?!” And I would respond something to the effect of: “Hrm…then this doesn’t hit the budget! Free baby!!”

(Not having it hit the budget meant it wasn’t subjected to the Julie Test of Reasonableness, where Julie basically susses out in a few seconds how reasonable my purchases are.)

To give you an idea of how I spent my credit card points in 2013, I present to you this unfiltered list:

  • Two Trident HP Headlamps
  • Four Kiddie Two-Story Fire Escape Ladders
  • 100 feet of Paracord
  • 50 Bic Lighters
  • 12 candle holders
  • A water filter replacement kit
  • “Be Expert with Map and Compass”
  • A water filter replacement cartridge
  • 72 10-hour candles
  • 4 100-hour candles
  • A shortwave radio
  • A Goalzero solar backpacking kit
  • A Goalzero AAA rechargable 4-pack
  • 2 Buffs
  • A military tritium compass
  • 24 bandanas
  • Some high-calorie energy bars
  • A BlastMatch fire starter
  • Needle-nose pliers
  • Tactical gloves
  • Wetfire tinder tubes
  • A first aid kit
  • Knee pads
  • 150 yards of 20-pound fishing line
  • A 24-inch pocket chain saw
  • Three “prepping” books (had you noticed the pattern?)
  • A UV water purifier
  • Women’s hiking boots
  • Two pairs of smartwool socks
  • Heirloom seeds
  • Potassium Iodide tablets

That was all before January 15th of this year.  I had set a goal to ready 72-hour kits for my family. Check.

Oh, what, were you getting bored?  The list continues:

  • LeapFrog Learn & Groove Musical table
  • BlastZone Magic Castle Inflatable Bouncer
  • Spot It and Blink card games
  • 200 pit balls
  • A tournament chess clock
  • Trace mineral drops
  • Moisturizer
  • Lunchboxes, with 3-compartment tupperware containers
  • iSi Gourmet Whip Brushed Stainless Steel Cream Whipper

That last purchase took place on September 17, 2013.  About the time I had my epiphany:

I guard cash like a hawk, but spend points like I’m Paris Hilton.

I didn’t price-shop, I didn’t scrutinize to near the degree of a normal purchase, I didn’t sanity-check it with Julie…I didn’t maximize the value of those points.

So I converted the points to cold, hard cash, deposited that cash into the bank account, and let Julie have full control of it (here’s the podcast where I talk about giving her full reins on the family budget).

It’s being put to good use.

I also signed up for a Fidelity 2% Cashback card and am running about half our monthly (non-payroll) business expenses through there. The awards are deposited directly into a Fidelity brokerage account, where I’ll invest the funds accordingly.guarantee I won’t withdraw from that account.

My hope is that the vast majority of you do not run that kind of spend through your credit card; at least not for your household! But if you’re a small business owner, and you find yourself accumulating an unholy amount of points on your cards, are you guilty of similar thinking? Where the points can be flushed down the proverbial toilet, and avoid the normal checks and balances of an equivalent purchase?

For those with a significant amount of points racking up, I think you’d be well-served to convert to a cashback card, where the cash can be accounted for and managed…more appropriately.

29 Responses to “How to Flush Half a Million Credit Card Points Down the Toilet”

  1. brad

    I think for some people, loyalty and points cards can make sense, but they still deserve a cold, hard look. My basic approach is to be loyal to no one, and if I have a rewards card I only want to rack up cash, not points. I don’t even participate in frequent flyer programs, because I don’t want that to influence my choice of airline or alliance, although if I were actually a frequent flyer I would probably take advantage of those programs (I generally fly once or twice a year, max).

  2. Andy

    The Ink Bold card from Chase might be a good choice for someone with that many potential business credit card points. *If* you travel, the redemption value that can be achieved by transferring those ultimate rewards points to partners such as United can far exceed the value that is realized by simply exchanging them for cash at $0.01/point.

    For example, I just transferred 40,000 Chase UR points to United Airlines and redeemed them for a round trip flight to Hawaii that would have ran about $1300 – giving me a value of $0.0325/point.

    Just some food for thought.

  3. Kait

    I don’t have/receive many points, but with my personal card points (Amazon Rewards Card), I found that I was doing what you describe: purchasing items without price-checking or applying the same level of scrutiny that I would with other purchases. My solution came when I realized that I could apply my rewards as statement credits. Now, I have to apply the same level of scrutiny to my purchases, because I won’t use the points to purchase something on Amazon. Then, when the points add up, I apply a statement credit, thus lowering my credit bill. I enter the rewards as income when I submit my credit card payment in the month that I use the rewards. This way my rewards are a discount on items already purchased rather than something to encourage further spending. If I had anywhere near the number of points you are racking up, your system of investing would intrigue me.

    • Kait

      Two things to add:

      1) Since purchases using points on Amazon purchases are not earning points, I find that it makes more sense to earn the points on purchases and use the rewards as a discount on those purchases rather than using the points and not earning more points.

      2) I know very little about businesses and the US tax code, etc, but, I’m curious, are those rewards not the “property” of the business? In the way you are using them, are they not income to you from the business? I did a quick search (http://money.usnews.com/money/blogs/my-money/2013/02/04/are-credit-card-cashback-rewards-and-airline-miles-taxable) and it sounds like rewards are seen as a discount on purchases. So, if they are a discount on business purchases, should not those rewards be applied to business expenses? Not trying to rock the boat here, I’m genuinely curious.

      • L Lessa

        Regarding point 2, I would think it is up to business to decide whether the cashback needs to go back to business expenses or is a perk for the employee/CEO.

      • Kira

        What I recall seeing about it was basically that the amounts were not very big for most people and thus the IRS in a roundabout way said that they were too small to care about. Were you running some kind of points-generating scheme with the business card, they might notice on an audit, though.

  4. AAB

    I get the same prompt from Amazon. I try to save the points and use them as bonus spending money every year during Christmas.

  5. B

    For our personal situation, we love the Citibank American Airlines Card. We try to put all of our business expenses that we can on this card. We are a family of four and my wife’s family lives halfway across the country. Using miles, we just booked our Christmas flights, which would have totaled over $2,000 for only $20. Each ticket also includes two free checked bags, which is great when traveling with young kids. But you are right. Because we have points, we aren’t diligent to book early, and avoid possibly spending more miles. Thanks for that reminder.

  6. James

    I run my own business and realized a few years ago I was accumulating thousands of points. However, I started shopping those points. For example, to use the points to pay an amazon purchase would cost 10,000 points for 60 bucks. Cash back was a similar cost. However, my credit card offered one incredible deal. For 10,000 points I could get a $100 student loan payment – a far better deal than cash back, but essentially worked the same way. I think with points, it’s easy to look at it as “free” but it doesn’t mean we should spend them unwisely. I think it helps to shop your points (with your spouse) and use those points wisely, as you would with your money.

  7. RR

    In general, get a travel rewards card and spend the points on travel. Using points for cash or merchandise is a waste (cash though is usually better than merchandise). You get much better value on hotels and airlines. Rather than getting an airline branded card, get one that allows you to transfer points to airlines, hotels etc. I know Chase does this. I think Citi might as well. Also, if you’ve already made up your mind on where you are going to buy something, check whether shopping through the CC merchant portal will give you more points. For example, if I buy something from JCP or Macys on my Chase CC, I get 1 point per $. But, if I shop through Chase’s Ultimate Rewards Mall (it basically provides a link through to JCP etc.), I think I get 5 points per $. Shouldn’t affect choice of merchant (i.e. picking a more expensive item from Macys because of the higher points). But once decided on merchant, why not maximize the points?

  8. Trevor

    I use points primarily to get restaurant give gift cards which I to augment my ‘dining out’ category. I used to actually add them into the budget at income, but then it threw things off a bit to have funds in a category that were only good for specific restaurants. Someday when I’m feeling ambitious I might try to track it that way again.

  9. brad

    The problem with rewards cards that provide points for hotels is that you probably end up staying at more expensive hotels than you would otherwise. Unless you’re the kind of person who stays in expensive hotels as a matter of choice, of course. We just got back from a vacation where we spent $50/night for a motel, and the other one was in a larger city where we paid $100 for a room with breakfast and free WiFi included. Most of the rewards cards I see that offer points for hotels tend to go with the big chains like Hyatt, Hilton, etc., that tend to run more than you’d pay if you’re willing to shop around a bit more.

  10. daysanew

    Wife and I have been thinking of picking up a rewards cards to pay bills through (think miles since we have started traveling more and want to continue traveling). I’ve seen Mark mention his card gets paid off automatically every month, anyone have any idea how that works, is it a common feature of credit cards or a special case?
    Also anyone have any input on case vs miles? We like to take a nice vacation everything (this year be budgeted and stayed under budget thanks to YNAB!) so we would put those miles to use…

    • Lynda SR

      It’s a common feature of most credit cards. I have every credit card/store card I have set up like this (or ones I’ve had in the past), with the exception of Walmart and Kohls. And I honestly think they don’t allow this because they want you to forget to pay the bill so they can hit you with late fees. Gotten rid of the Walmart card because of this even though you save 5-15cents per gallon at the gas station which is the only reason I got it in the first place. First $25 late fee wipes that all out.

    • Jesse

      It’s a very common feature on cards, to set up an automatic payment to pay the balance in full.

  11. Sara R

    My husband works for a company where they get small to not-so-small bonuses throughout the year. They can choose what form they get it in and at first he was getting gift cards for different stores and allocating it as extra fun money for us. When we realized it was getting to be a regular “thing” we talked about how it had become a form of irregular income. We agreed to get it only in Amazon gift cards and spend it on things from the budget that we would normally buy on Amazon that are already budgeted like gifts, household items, repair parts, pantry items, books, etc. We don’t increase the budget for those categories, so if the cash from those categories isn’t taken from the paycheck, it is free for other things on the budget and we direct it accordingly down our irregular income budget. This has worked for us for this past year.

  12. Emily

    Dude! If you’re a highly respected budgeter and blog about a credit card you need to have a link in there so you get a commission! Call Fidelity and see if you can get one and throw it in there. If anyone signs up through your link we WANT you to get the credit (and a little bonus cash for our favorite business.)

  13. kiwi

    We have a rewards card tied to our mortgage. Since we route most of our spending through it (and pay it off in full each month) we get an average of $75 a month applied to our principal. In just over a year we got the equivalent of one months mortgage payment (principal only)..

  14. Kenneth

    ROFLMAO about spending money like Paris Hilton.
    You can get 2 percent cash back because it is a business card. The best I seem to be able to do is 1.5 percent cash back on my Capital One Quicksilver card. I have it set up to automatically credit my charge account whenever it reaches a $25 cash back balance. This means I am getting a “free” $35 a month or so extra income. I’ve tried to put all recurring expenses I can on the card. Not everything is possible, but I have electric company, YMCA, cell phones, cable tv etc. going thru there. Of course with YNAB, all spending is budgeted, so I pay the sucker off about 2 weeks before my due date every month. The rich get richer because we can collect a free $35 a month without paying a dime of interest because we always pay our credit card balance in full.

    Jesse and Mark, Mr. Money Mustache has rubbed off on you, and that is a good thing. Every dollar not spent counts – it either pays down debt, or once that is gone, earns you, on long term average, 7 or 8 percent a year invested in index funds. Win Win.

  15. Chad

    My wife and I have used the Chase Freedom card our entire marriage (just 3 1/2 years) and always do cash back ($ credit put back on our card). We then discuss which categories in YNAB we should split the money (which is far less than what Jesse gets). Unless there was an unexpected and un-budgeted need that arose (which YNAB helps us avoid), it usually goes toward a vacation, date night fund, or restaurants…all which promote family time. This has worked well for us.

    If one can discipline him/herself to treat his/her credit card no differently than a debit card, it is amazing what the credit card companies are willing to give you just for using that payment method.

  16. rudeboyrg

    I do hope you realize that cashback cards are becoming somewhat of a rarity. Many former cashback cards have switched to point cards and this is an ongoing trend that will continue. If you have a cashback card chances are it is only a matter of time before you are automatically “UPGRADED” to point rewards. Then watch your reward points lose their values. It is a common trick. It has happened to a number of my cards.

  17. Ben

    It’s funny you bring up the Amazon Rewards credit card as I was checking out to purchase Christmas gifts on Amazon last night I was offered their Amazon Rewards credit card with $50 credit to the purchase. It seemed like a really good deal but I really like my current Chase Freedom cash back credit card and like the concept Jesse stresses which is to keep things simple and that less accounts the better. I really do not want to have to track another credit card in YNAB and like having most of my spending on 1 card. It’s hard not to shop every once in a while for a new card though with the good rewards cards out there but I always go back with just keeping my 1 credit card.

  18. wendy

    I have 1 credit card, no opportunity for cash back but got them converted to Qantas frequent flyers, as the points do not expire and Qantas is the only airline in some of the places I travel. I also earn points when I fly and stay at certain hotels, but I won’t stay at a particular place just for the points. And I only use the points for flights not merchandise. Though their wine deals are often very tempting.

  19. Steve Bailey

    While I understand what you are saying sometimes I consider the points and “buying free stuff with them” my reward for doing my job well financially. True I could do better by using a cash back card and investing the returns but, at some point, you have to reward yourself. By the way, where can I get some information on the fidelity card? That sounds like a good idea.

    • 123

      What’s rewarding about spending money thoughtlessly and inefficiently? Better to be truly mindful about purchases whether they’re paid by cash, cards, or points.

  20. LeiraHoward

    One of my credit cards gives rewards strictly as cash back, and automatically applies it to my account once per year. So, once every year, I get a nice fat payment of cash to help with my credit card bill for the month. (Would be nice if it was more often, but at least this way I do get it in cash and don’t fritter it away, and don’t have to do anything to get the money.)

    Another card allows me to redeem my points for cash, but only after I’ve reached a 2,000 point ($20.00) threshold. Which stinks, as I have to wait and ALSO remember to go in and do something about redeeming the points later. This same card USED to just automatically apply the points each month, so 542 points would equal $5.42 off of my bill. I prefer that, but they don’t do it any more. :-(

  21. Kenneth

    I’ve had Chase and Capital One recently (still have both). The new Capital One Quicksilver seems like a great card. 1.5% back on every purchase, every time, no limit. You see your rewards balance going up every day. There is an earn history so you can see that yesterdays $40 Walmart purchase earned you 60 cents in Rewards. Yes they have catalogs of stuff but I prefer the statement credits. I have mine set when it reaches at least $25, it credits my account for $25 even. That happens about every 3 weeks or so.

    Chase, on the other hand – they tell you NOTHING about your reward balance until after your account has statemented. They’ll have some specials going on like 5 percent on gas purchases – or 5 percent at Kohl’s or 5 percent on dining out. But there are limits on these. Everything else earns 1 percent. I like the 1.5 percent Capital One, no limits, instant earn, no muss no fuss.

  22. Kira

    I used to have a business which would run about $5-10,000 per month through an Amex Gold card. I used the points to buy gift cards to the Melting Pot and we went every few months ($100-200 a visit). Could have done a lot better for our budget and our waistlines. :)

  23. tuffdadsf

    We signed up for the Amex Blue Cash card at the suggestion of a fellow YNAB-er. It’s our only card and we use it for EVERYTHING. We also used the suggestion of leaving the cash back in the account until December and then making that the budget for Xmas gifts. It’s turned out to be win-win for us as there’s more than enough to cover all the gifts this year!

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