Author Topic: Thoughts on what to do with rewards/miles when your hair is a bit on fire  (Read 4558 times)

darkhorse

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OK, I haven't done a Case Study yet because I wanted to also formulate and submit a plan along with it. The short story is that I have some consumer debt (HELOC - $7K @ 1.9% until 2/2015, then 4.99%), student loan debt ($9K @4.35%), 2013 purchase of a 2014 model car loan ($17K @ .9%)...so my hair is on fire. The good news is that with the help of this site, I've zero'd out some credit card debt ($2K) and struck down the student loans quite significantly. Revenue has been freed up by finally losing some emotional ties to a classic car (and selling), using some savings, and just plain adding some frugality. This all has happened over the last 4-5 months.

In the interest of examining ALL available sources of funds to pay down debt, I'm planning on breaking up with an old motorcycle and selling ($4K), finally selling off an inherited coin collection (~$8K but will take some time to sell on eBay), and selling some more stuff on CL that has value but just sits (~$1K).

Which brings me to the subject of this thread. We've had a Cap One Rewards/Miles card since 2004 and have used it for all purchases that we can. We pay it off every month. We've billed three airline tickets on it two years ago, but other than that it's just building miles. Currently we have 455,000 miles accumulated, so that's about $2200 if one were to take the cash out (or account credit) that could be utilized to pay down debt. However, I think I read somewhere that this option is the worst value, compared to actually using it for travel-related costs, correct? I should have mentioned that we would never use it to buy the "stuff" they offer (TVs, electronics, etc). For comparison to the $2200 cash out, 455K miles would fly our family of three to most anywhere in Europe, with another flight for three to many shorter domestic destinations. That's approaching a $4K flight value that we could utilize, post hair on fire time, so I'm struggling with the cash out option. For the record, in country, we proven that we travel relatively cheaply. :)

I'm looking at options:

1.  account credit/cash out and pay down debt
2.  transfer to a better card and keep building miles (haven't researched IF there is a better card that the miles could be transferred to. Current card pays 2 miles per dollar on every purchase)
3.  cash out and invest in IRA after debt is paid off
4.  just keep it and use it for a designated vacation fund, but only AFTER we extinguish our hair
5.  ?

Would love some feedback. Please and thanks!
« Last Edit: September 14, 2014, 07:04:50 PM by darkhorse »

Gin1984

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #1 on: September 14, 2014, 06:25:40 PM »
Cash out and pay off the debt and then get a cash rewards credit card for better value.

darkhorse

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #2 on: September 14, 2014, 06:39:02 PM »
Thanks Gin. I know that "Google is my Friend", but is there a mustachian card recommendation that you have in mind? :)  Just wondering where you're coming from with your recommendation. If I know that, then I'd have a better idea of what type of card would best benefit our situation (miles card, rewards, cash back focused). I haven't spend much time researching what's good for cards now. I do have a side hustle LLC, so a business card could be an option too. Thx!

« Last Edit: September 14, 2014, 07:03:42 PM by darkhorse »

Gin1984

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #3 on: September 14, 2014, 07:07:53 PM »
My favorite is fia's AMEX for 2% into my Roth and Fia's VISA for 1.5% into my Roth, but that is because I am not maxing out my retirement accounts yet and because I want simple.  Others may have other recommendations.

thedayisbrave

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #4 on: September 14, 2014, 07:19:59 PM »
How often do you travel/how much traveling do you anticipate you will do in the next few years?

Yes, you have debt but personally I'd be more inclined to keep the miles and use them to offset travel costs.  But I really enjoy traveling. 

Based on your calculations, you'll net about $13K after you sell some stuff.  That's enough to fully pay off your student loans & knock out about half your HELOC.  You don't post your income/expense breakdown, but I'd think as long as you are able to pay down your HELOC before the rate goes to 4.99% in Feb of 2015, you should be OK.  That would leave your car loan which has the highest balance but lowest interest rate.  You could then work on getting that down.  Car loans are not good but 0.9% is not worth cashing out your awesome mileage balance to pay down, IMO.  But again, I travel... maybe a lot more than you? 

darkhorse

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #5 on: September 14, 2014, 07:32:19 PM »
TDIB, thanks for your response. We caught the travel bug pretty hard ten years ago and went on several international trips. Currently, apart from business travel, we're not doing much. We have a small child, so in a few years we want to start again. Frequency would be one international trip every few years with maybe one regional trip every other year. Probably nowhere close to what you're doing? Still, we value travel as life experience and want to expose our son to it. We are valuing FI more though, so we're trying to find some middle ground.

I'm actually considering Gin's suggesting of getting a cash rewards card in addition to our Cap One card. Use the AMEX as a primary card with rewards of probably $60-$75 /month going into a Fidelity fund. Use the Cap one as a back up card where they don't take AMEX, and just keep the miles to be used at a later, more responsible date. Note that there is not capital freed up for debt paydown in this scenario, but we have good income and can take care of it by early 2015 with discipline. One thing about the FIA AMEX is that you have to leave the rewards in the account for 20 years before withdrawal. Will have to think about this scenario a bit more.
« Last Edit: September 14, 2014, 07:35:26 PM by darkhorse »

Gin1984

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #6 on: September 14, 2014, 07:37:21 PM »
TDIB, thanks for your response. We caught the travel bug pretty hard ten years ago and went on several international trips. Currently, apart from business travel, we're not doing much. We have a small child, so in a few years we want to start again. Frequency would be one international trip every few years with maybe one regional trip every other year. Probably nowhere close to what you're doing? Still, we value travel as life experience and want to expose our son to it. We are valuing FI more though, so we're trying to find some middle ground.

I'm actually considering Gin's suggesting of getting a cash rewards card in addition to our Cap One card. Use the AMEX as a primary card with rewards of probably $60-$75 /month going into a Fidelity fund. Use the Cap one as a back up card where they don't take AMEX, and just keep the miles to be used at a later, more responsible date. Note that there is not capital freed up for debt paydown in this scenario, but we have good income and can take care of it by early 2015 with discipline. One thing about the FIA AMEX is that you have to leave the rewards in the account for 20 years before withdrawal. Will have to think about this scenario a bit more.
No you don't.  As long as you have had the account open for 5 years, you can pull ANY contribution out.

innkeeper77

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #7 on: September 14, 2014, 08:26:07 PM »
I'd think more about taking the cashback option. It has  alower dollar value than using it for travel later, but you are currently in debt and paying interest. Therefore, the cashback option is a better value than normal because it reduces interest. (Conversely, holding onto the points and using it fro travel has a lower value than you think- because to do so you will most certainly be paying more interest on your debt over time) - You need to find out where the break even point is, to determine if the extra $2000 off debt right now gets you a larger net gain over time than you would save on air tickets later. (It's also possible that it wouldn't help enough, making the tickets later a better value)

I'd cash out though, because debt is annoying, and you never know when they can change the rewards program TOS or eliminate it altogether..

darkhorse

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #8 on: September 14, 2014, 08:35:53 PM »
Good points Innkeeper. This makes me think about timing. Perhaps it would be best to wait the month before the HELOC bumps up to 4.99%, evaluate if my debt reduction plan actually has went as planned, then cash out or hold the points depending on how much debt I have at this time, if any. Thanks!

darkhorse

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #9 on: September 14, 2014, 08:39:39 PM »
TDIB, thanks for your response. We caught the travel bug pretty hard ten years ago and went on several international trips. Currently, apart from business travel, we're not doing much. We have a small child, so in a few years we want to start again. Frequency would be one international trip every few years with maybe one regional trip every other year. Probably nowhere close to what you're doing? Still, we value travel as life experience and want to expose our son to it. We are valuing FI more though, so we're trying to find some middle ground.

I'm actually considering Gin's suggesting of getting a cash rewards card in addition to our Cap One card. Use the AMEX as a primary card with rewards of probably $60-$75 /month going into a Fidelity fund. Use the Cap one as a back up card where they don't take AMEX, and just keep the miles to be used at a later, more responsible date. Note that there is not capital freed up for debt paydown in this scenario, but we have good income and can take care of it by early 2015 with discipline. One thing about the FIA AMEX is that you have to leave the rewards in the account for 20 years before withdrawal. Will have to think about this scenario a bit more.
No you don't.  As long as you have had the account open for 5 years, you can pull ANY contribution out.

You're right! I misread the terms.

I actually like the idea of this card...for another use. I've been meaning to start a 529 and this card has that ability. The nice thing is that one of the grandparents has expressed interest in contributing to a 529, directly. They might even be inclined to apply for and use their own FIA AMEX which could be set up to deposit their rewards into my Fidelity account, which will then contribute to their grandchild's 529. Will have to present that idea to them.
« Last Edit: September 14, 2014, 08:41:41 PM by darkhorse »

Gin1984

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #10 on: September 15, 2014, 10:53:10 AM »
TDIB, thanks for your response. We caught the travel bug pretty hard ten years ago and went on several international trips. Currently, apart from business travel, we're not doing much. We have a small child, so in a few years we want to start again. Frequency would be one international trip every few years with maybe one regional trip every other year. Probably nowhere close to what you're doing? Still, we value travel as life experience and want to expose our son to it. We are valuing FI more though, so we're trying to find some middle ground.

I'm actually considering Gin's suggesting of getting a cash rewards card in addition to our Cap One card. Use the AMEX as a primary card with rewards of probably $60-$75 /month going into a Fidelity fund. Use the Cap one as a back up card where they don't take AMEX, and just keep the miles to be used at a later, more responsible date. Note that there is not capital freed up for debt paydown in this scenario, but we have good income and can take care of it by early 2015 with discipline. One thing about the FIA AMEX is that you have to leave the rewards in the account for 20 years before withdrawal. Will have to think about this scenario a bit more.
No you don't.  As long as you have had the account open for 5 years, you can pull ANY contribution out.

You're right! I misread the terms.

I actually like the idea of this card...for another use. I've been meaning to start a 529 and this card has that ability. The nice thing is that one of the grandparents has expressed interest in contributing to a 529, directly. They might even be inclined to apply for and use their own FIA AMEX which could be set up to deposit their rewards into my Fidelity account, which will then contribute to their grandchild's 529. Will have to present that idea to them.
If grandparents want to contribute to college, have them start their own 529 for the student's senior year, then that money won't be considered in regards to financial aid.  Money in your name, or money given to the student from a year before college to junior year will be.  Any money ABOVE senior year costs, yes give to you.  ;)

tweezers

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #11 on: September 15, 2014, 11:55:50 AM »
Is there a way to use the rewards to pay for work-related travel, and then be reimbursed the monetary value of the travel? 

Prairie Stash

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #12 on: September 15, 2014, 12:07:06 PM »
I just cashed $600 of points out, I could have flown to Europe. Realistically by the time I travel the money will grow to $750, the longer I delay travel the more the money grows (in 10 years I expect to have $1200 for travel).  Points lose value every year, I've seen several cases where amounts needed increase after a few years.  I've also cashed out hotel points this year, some for cash others for gift cards for presents.

Be honest, when do you plan on using the points? If its soon then keep them.  If its over 5 years cash them out.

kendallf

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #13 on: September 15, 2014, 12:12:24 PM »
The Fidelity Amex card is a good one, but if you want some additional options, look at www.nerdwallet.com.  If you use Mint to track your expenditures, it also has a credit card recommendation tab (they make their money this way). 

I think **if** you're traveling regularly and spend enough to make the minimum expenditure anyway, the cards which offer hotel and mileage bonuses are much more lucrative.  It just takes more work to make sure you track and use the points, close cards before anniversary fees are charged, etc.

kathryn1029

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #14 on: September 17, 2014, 10:28:53 AM »
This post may come too late, but please do some more research on exactly what your options are for using your rewards. I also have a Capital One card.... the Venture. With my miles, I can either request a check and receive a dollar amount that is .5% of my mile balance (ex 40,000 miles = $200) OR I can request credit for past travel expenditures and receive a 1% credit (40,000 miles = $400). They count lots of things as travel-- I bet gas would count. I don't have a car but my public transportation and taxi expenditures count.

Look into this.

frugaliknowit

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Re: Thoughts on what to do with rewards/miles when your hair is a bit on fire
« Reply #15 on: September 17, 2014, 11:19:30 AM »
Echo Inkeeper 77.

Plus, it is never a good idea to leave cc rewards parked.  The reason:  They can change the rules on you at any time.  There is no contractual obligation for you to be able to use those points in the future.  Cash everything in, then get a more appropriate card.