What would you do if you had extra cash trickling in every month, or every quarter? You could buy more stuff! Give gifts to your family and friends! Let your kids spend it! Put it into a high yield savings account! Invest it! Or...use it to pay off DEBT! If all of these options are possibilities for you, then paying off debt is your top priority. Did you know that Debt is just Investing backwards? The same way investing helps your money to grow by using compound interest, compound interest also helps your debt grow...just not in the direction you would like! Think of it as Negative Compound Interest. This interest is also a stronger force than the S&P 500 or Total Stock Market. Over the past 50 or so years, the Total Stock Market and S&P 500 have averaged around an 8% to 10% gain per year. Credit Card Debt however, currently has an average interest rate of over 17%. If you have debt with interest rates that are higher than the average gains in the stock market, then you need to focus on paying off these debts. This doesn't mean you can't use credit cards or invest, however! Good news!
A great way to start earning extra cash without working a side hustle, getting a raise, or changing jobs, is to earn Cash Back on your everyday purchases. The BEST way to use Cash Back is to pay off debt, which I would highly recommend if you have high interest Credit Card Debt or Student Loan Debt. When you use it to pay back debts, it is just like getting an immediate return on your "investment". Especially with credit cards, considering the average interest rate on a credit card is around 17% . The stock market over its history has averaged about 8 to 10%, so if you do have Credit Card debt, it doesn't mean you have to completely stop using them. Here's what I mean...
Credit Cards Are A Strong Foundation
Avoiding using credit cards is the simple answer. In fact, Dave Ramsey would tell you to never use credit cards. But Dave also knows that Credit Cards are not the problem, behavior is. The same items you would use your debit card for, you can substitute a Credit Card for. Credit Cards are a tool, and you as the user determine if the tool is used to build or destroy. Think about a knife, or more generically a "cutting tool". You can use a cutting tool to save a life as well as to take life away. Surgeons use cutting tools to get inside of the body to fix ailments your body is dealing with. However you can also use a cutting tool to cause an ailment to a person's body. We use knives almost every day to cut food, which makes it easier for us to eat. We use scissors to open bags of food, or if you're Dave Ramsey you can use scissors to cut up Credit Cards! Either way, the use of the tool depends on the behavior and intent of the user. Build or Destroy!
So how are Credit Cards the foundation of getting out of debt? One way, which we won't go into detail about in this post, is by using a new Credit Card at a 0% interest rate to transfer your previous credit card balance to. This reduces your interest rate from the 17%+ range to 0% in many cases. This will save you a lot of money in the long run because the debt, for a limited time, is not compounding! But the focus of this post is about how Credit Cards are the foundation for making more money, passively! Yes you can use Credit Cards to make passive income by using a Cash Back Rewards Credit Card! Cash Back Rewards allow you to earn a certain percentage of cash back on every purchase you make with your credit card. There are cards which earn a base rate as high as 2% on all purchases, while there are others which may only give you 1.5% or 1% on all purchases. There are other cards which may give you even higher cash back in specific categories. For instance the Discover IT card gives you 5% Cash Back each Quarter in a specific category. One Quarter the category may be online shopping with specific stores like Walmart, Target, and Amazon. The next quarter may be groceries, gas, or restaurants. Either way, throughout the year there are specific items you can buy and receive 5% cash back! While a card like the Costco Visa gives you 4% at any gas station (not just Costco gas), 3% on restaurants and travel, 2% in Costco, and 1% on everything else. This is year round, and does not change or need any additional work from you to activate! If you don't want to have to think about a specific category, then the Citi Double Cash Card is for you. Get 2% Cash Back on ALL purchases, no matter the category. You receive 1% back when you make the purchase, and 1% back when you make the payment. If you really want or need the debit card feel, every time you make a purchase on your credit card immediately go to your card providers website or mobile app, and make a payment in the same amount as the item you just purchased instead of waiting until the bill comes! Boom! Problem solved!
It's Like Getting a Discount Every Time You Shop
Assuming you don't let your balances sit, and you pay them off in full, you can benefit from cash back. Qith the average interest rate over 17%, you would lose the benefit of the cash back you receive in just 1 to 3 months if you hold a balance on your card. But if you do pay the balances off each month, you can think of Cash Back as a discount. Or rather, if you change your credit card use behavior, you can treat it like a discount! With the Double Cash Card you get 2% back on all of your purchases. You can choose what you do with the cash back. You have the option to use it to buy gift cards, send it to your bank account, receive a check, or receive it as a statement credit...AKA pay your credit card bill...AKA TWO PERCENT DISCOUNT!
Again, this is the FOUNDATION...that means there are levels to this!
Where Else Can I get Cash Back?
For a quick answer, checkout my Top 7 Cash Back Apps blog post, but if you would like to continue lets discuss what goes on top of your foundation...Cash Back Apps! Cash Back Apps and websites are tools you can use to gain additional Cash Back when you use your credit card. There are many apps available like GetUpside, Pei, Dosh, Drop, Ebates/Rakuten, iBotta, and many many more. Some require more manual work than others, and I'm all about automation, so pick your poison. Then you also have Stock Back Apps like Bits of Stock and Bumped, which give you a "cash back" percentage, but the cash is used to buy the stock of the brands you shop with! Between all of the cash and stock back apps I use, I can get close to or above 10% back on just about ALL of my typical purchases in a month.
Here's an example of how I am able to get close to 10% or more cash back every time I pay for gas. I use the Costco Visa card, which gives back 4% cash back no matter what gas station I buy gas from. In this example I will use Shell. Shell is also available as a gas station of choice on the GetUpside App. Typical cash back per in my area is between 5 to 9 cents per gallon, and a gallon of gas can range from $2.20 and $2.40. Using the low and high ends of both the cash back and the cost of gas in my area, that's a cash back percentage ranging from 2% to 4%. Add this to my Costco cash back, and I now have 6% to 8% cash back every time I purchase gas at Shell, and upload my receipt to the GetUpside App.
But wait...there's more! With the Stock Back App Bumped, Shell provides .5% cashback, and Bits of Stock provides 2.5% cash back. You can Stack these rewards, giving you 3% back in the form of stock, in addition to the previous 6-8%, giving a reward total of between 9% to 11%. This is pretty amazing! For the purpose of this post however, we will ignore the 3% from the stock back app, and just focus on the 6-8% from the cash back apps you will receive cold hard cash from.
How much do you spend on gas each year? At current gas prices I spend about $30 a week on gas for my car, and about another $30 every 2 weeks on my wife's car. That's $180 a month, but lets round up to $200 for easy math, and to add on the occasional road trip. This equates to $2,400 a year just on gas. If your'e receiving 6% back every time you buy gas that's $144 in cash back, or $216 cash back at the high end of 9% cash back. This means we, or you, have the opportunity to either pay off an additional $140 to $200 in debt just by stacking credit card and cash back app rewards, or getting that amount as a discount on your gas bill for the year! This is only made possible by using a Credit Card, because there are very few if any Debit Cards which give you Cash Back. The Cash App Cash Card is one such Debit Card, but they don't currently give Cash Back on gas! The Cash Back Apps I mentioned require you to use Credit Cards exclusively in some cases, and others may allow you to run your Debit Card as credit in order to receive credit for your transactions. Either way, you can see how using a Credit Card can be the Foundation for not only making passive income, but also using the income to pay off debt faster! You have to spend money each month no matter what, so you might as well optimize your spending by using your credit card.
How Do I automate it
I love automation. Anytime I have the option to make a process automatic, I do it! Whether it is paying bills, using cash back as a statement credit, or connecting my credit card to a cash back app to receive cash back automatically! As mentioned previously, and discussed in more detail in this Blog, not all cash back apps are created equal. For the Cash Back Apps that allow you to connect your credit card in order to receive cash back from local restaurants and retail stores, these are a must have! Not all Cash Back Apps allow you to receive cash back automatically, and even some of the ones that do, it may not be automatic for all stores available in their app. For instance with GetUpside, you have to check the app to see which gas stations in your area will give you cash back, and how much it will be. Then you have to activate the offer, buy gas within that time period, then upload your receipt within the allotted time. This is typically a 4 hour period, so it's not a huge deal, but it's not automatic! When you decide that you need gas, just pop open the app, select a gas station, buy your gas, then upload your receipt before you even leave the pump. The same is true for the iBotta app as you have to upload a receipt, except with iBotta you only receive cash back for specific items, which you need to also activate prior to purchase. However apps like Bumped and Bits of Stock allow you to select specific stores, and no matter when or which specific location you shop at, you will receive stock back every time you shop with that brand. This is automation and passive income at its best! Now get out there and use the cash back to pay off credit card and other debt, so you can truly enjoy the discounts which cash back rewards provide!
Friends Don't Let Friends Use Credit Cards Improperly
Credit Cards can be your enemy, or your best friend. It all depends on how YOU treat them. Abuse their power, and the power of compound interest will eat you alive. Use them properly, and they are a powerful tool. Again, it all goes back to behavior. A Credit Card is just the tool, your spending behavior determines whether or not you go into debt from using it, or get unlimited discounts. Not to mention, being safer to use than Debit Cards.
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AJ Mobile Money
Husband | Father | YouTuber | Former ATLien
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