DIY Rewards Cards: Pay Yourself Back Without Going Into Debt | Guest Post

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Today I’m publishing a guest post by Jason Jacobs. Jason Jacobs is a missionary in a web programmer’s body. In addition to working on financial fitness, he also spends a lot of time writing about his journey towards physical fitness. You can follow his progress at Finding My Fitness.

Many of us are probably trying to get out of credit card debt quickly. We’ve also seen the ads telling us the benefits of having a card. Those of us that carry them probably have our reasons: cash back, airline miles, hotel nights, things like that.

We justify using it because of the rewards we get out of them. I used to have a credit card for a gas station chain. It was nice; when I used it at the pump, I got 4% back, and any other purchases got me 1% towards a gift card at that gas station. I got a free tank every couple months. They’ve stopped offering that one, so I got another one to start earning airline miles because my wife is Paraguayan, and we will probably be flying down at least once a year.

The problem for most people with a credit card, though, is that it’s like putting a jar of cookies in plain sight of someone who’s on a diet. We tell ourselves we won’t eat them, but we can only walk past so many times before we dip into it and take one. If we’re not very careful, we’ll find ourselves in the bedroom with the door locked stuffing our face with chocolaty-chippy-goodness.

Credit Card Rewards Cards Are Not Very Rewarding

Earning miles is a joke.

(Editors Note: Hey everyone, Craig here.  I’m going to have my full response to this statement tomorrow.)

Yeah, I got a bunch of miles up front when I got my airline card, but if you do the math, it works out to be about a 1% return. In other words, for every $100 you spend, you get $1 towards a plane ticket. I’ll need to spend $10K to get even a ticket to Florida, let alone South America ($50K, if you’re wondering). The biggest benefit of the card I have is that the first checked bag for each passenger is free, which is a $50 savings each time. I will make the annual fee up each year because of that, and it’s what made me decide to get it (although I’m reconsidering).

The biggest problem with a rewards card is that you have to use it – a LOT – for it to be worthwhile.

You’ll want to spend as much as you can to get the most bang for your buck. If you budget your credit card expenses, you will be OK. You have got to be so careful that you don’t start spending beyond your means just to get more miles or points or cash back. Treat your credit card purchases as cash. Use the card as if it were a debit card. Otherwise the money you’ll spend in interest will completely upturn any rewards you may get. Just for a quick example: let’s say you get a respectable 2% cash back on every purchase. If you spend $100 on your credit card, you’ll be happy because you’re getting $2 back. But if you don’t pay it off at the end of the month, you’re probably paying 15% (divided by 12) interest that month on that $100. So you’ll get $2, but you’ll owe an extra $1.25 for carrying the balance. Go another month without paying it off, and you’ve now lost your cash back and also paid the credit card for the privilege of taking your money. I lived for 10 years with a credit card balance. They are not fun things to have.

There’s got to be a better way.

The Debit Card Alternative

What if there was a way you could get cash back and NOT go into debt? There do exist debit card accounts that offer cash back (PerkStreet is one of them, and they carry Dave Ramsey’s endorsement). They offer you the benefit of the rewards card without the risk of going into further debt, and I think that’s pretty cool. If you don’t want to leave your own bank, let me propose this plan to you: be your own rewards card.

Reward yourself

When I signed up with my current bank about two and a half years ago, they gave me a “high yield” savings account that deposits $1 each time I use my debit card. I used to just put the money back into my checking account when it would get low, but lately I’ve been smarter about it. For the past month, I’ve been automatically adding the $1 that the bank takes out to my expenses. So if I spend $10 somewhere, I’ll figure it as $11. At the end of the month, when my expenses equals my income, I “secretly” have money in my automatic savings account. That’s my reward.

Adding $1 to each transaction has been about a 1.5% “savings” from my own spending over the last couple months. That’s better than a lot of the rewards cards. When I reach $100 in that account, I send it straight to my credit card. It does not pass go, and it does not collect $200 (boy, if only…).

The indirect benefits of this method

I’ve noticed a couple things while managing my own rewards system.

The first one is that I use my debit card a lot.

The second one is that I can live on a lot less than I thought. I’ve saved $100 in a month and a half. Another thing it’s been teaching me is sort of automatic discipline, but that’s sort of more an effect of the budget itself. My brain doesn’t think about the fact that I have some extra dollars, it just sees the amount I have left for the month. I reach that number more quickly, but I still have to discipline myself not to dip into the stash. You don’t need to do this just for quicker debt reduction. You could absolutely use this for targeted savings. The point is you’re tricking yourself into saving more than you have written down, and you reach your financial goals quicker.

Would you give it a try?

If you can actually use a credit card responsibly and it doesn’t cost you more money to use it than it pays you back, go ahead and keep using it. But if you’re like me and need some help in the spending area, give this semi-automatic savings method a shot. You’ll probably be surprised at how much faster you can pay off your debt or save enough for your next vacation.

Here’s a way to kick it up a notch: if you can put away $1 for every purchase, can you put away $1.25? $1.50? $2? You see where I’m going with this. You might be amazed at how much money you can save up in a month or two by rewarding yourself with no risk of further debt!

What other ways have you tried out to save more or pay off debt quicker?


  1. says

    Craig, I’m definitely willing to get schooled on earning miles the right way. I really want it to work! South American flights are not cheap…


  2. says

    Interesting & innovative product development. Is this still going to be offered after the Dodd Frank bill limits debit card transaction fees. I hope so. I think, generally, it’s better to use money that you have rather than borrow it. It’s frustrating that credit cards offer better theft and fraud protection than debit cards. It’s not surprising that so many people are attracted to the lofty rewards programs offered by credit cards.

      • says

        Well the greatest thing about my plan (even after I switch banks and don’t have this savings account…) is that my “secret” money will be in my checking account still. That is to say I’ll have to keep track of the “rewards” as I use my card so I know how much I have. It won’t be automatically moved over.

        I realize that the major fault in the system is the need for manual tracking…. :)


  3. says

    When I was using my debit card a lot I signed up for the rewards program. As long as I made enough to cash in the points for more cash than I paid to get the rewards I was okay. When I dipped below I cancelled it. It was simple and really didn’t bother me much.

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