Category Archives: Uncategorized

New Credit Card bonus categories for Q1 2017

A new year is here, and with it, new bonus categories for cards with rotating bonuses (Chase and Discover).

Chase Freedom

5% cashback on up to $1,500 in gas and ground transportation.

Discover, Discover it

5% cashback on up to $1,500 in purchases at gas stations, ground transportation, and warehouse clubs.

New Categories for Q3 2016

Chase Freedom‘s new bonus categories are Restaurants and Warehouse Clubs, both paying 5%. This bonus pays up to $75 for the quarter. This category is notable because Costco now accepts Visa cards, and the cash back at Costco is better than the Costco Anywhere card.

Discover’s new categories are Home Improvement and, both at 5% up to $75.

Also, the new Costco Anywhere visa is active and you can apply for it. It pays 4% on gas, 3% on restaurants and travel, 2% at Costco, and 1% everywhere else.

Comparison of different debt repayment strategies

Scientific American recently asked, why don’t people manage debt better? It is a really good question, and the article does a good job of showing how people make seemingly-irrational decisions about how to pay down debt. The authors argue that the most optimal way to pay down debt is to use extra money to pay down the debt with the highest interest rate first – and they are correct in stating that it is the most mathematically optimal way to do it.

It isn’t the only, way, though and there are some good arguments that the mathematically optimal approach may not be optimal for other reasons. The “Snowball” approach, popularized by Dave Ramsey, is another approach that works well for a lot of people – it is less optimal from a mathematical perspective but more optimal from a psychological perspective in a lot of cases, and that is important.

We’ll compare 2 methods of paying debt down more quickly – paying the highest interest rate first, and the snowball method. This comparison assumes a few things – 1) You have more than one debt, 2) You have at least $1 beyond the minimum monthly payments to pay down your debts more quickly, 3) You aren’t accruing new debt.

Let’s assume you have 2 debts:

Name Amount Rate Minimum Payment
Car Loan $10,000 5% 100
Credit Card $24,000 15% 480

Now, let’s assume you only pay the minimums. How long will it take to pay them off and how much will you end up paying?

Name Time Interest Total Cost
Car Loan 10 years, 10 months $2,963 $12,963
Credit Card 6 years, 7 months $13,899 $37,899

You end up paying $16,862 in interest, or $50,862 total on an initial amount of $34,000.

Now, let’s assume you have an extra $250 per month to apply to your loans, and when you finish paying on one, you’ll apply the payment you were paying before to the remaining one.

1. Paying the highest interest rate first

In this method, you pay $730 per month on the credit card until it is paid down while paying only $100 on the car loan, then when the credit card is paid off, you apply the $730 per month to it for a total payment of $830 per month. Here is what that looks like:

Name Time Interest Total Cost
Car Loan 4 years, 4 months $1,710 $11,710
Credit Card 3 years, 7 months $7,103 $31,103

Your debt is paid off after 4 years and 4 months, instead of almost 11 years. You pay $8,813 in interest, or $42,813 total on an initial amount of $34,000. This is the most optimal way to pay the debt down, from the perspective of paying the least amount of interest.

2. Snowball (pay the one with the lowest outstanding amount first)

In this method, you pay $350 per month on the car loan until it is paid down while paying only $480 on the credit card, then when the car loan is paid off, you apply the $350 per month to it for a total payment of $830 per month. Here is what that looks like:

Name Time Interest Total Cost
Car Loan 2 years, 7 months $669 $10,669
Credit Card 4 years, 8 months $9,609 $33,609

Your debt is paid off after 4 years and 8 months, instead of almost 11 years. You pay $10,278 in interest, or $44,278 total on an initial amount of $34,000. You end up paying $1,465 more with the same set of parameters, except which debt you pay off first.

$1,465 is no small chunk of change. So, why would you consider this method? There are two reasonably good reasons:

a) The psychological effect. For a lot of people, making more progress on a smaller debt may motivate them to stick to their plan to pay off debt and increase the likelihood that they will be successful. If that is the difference between sticking to a debt repayment plan and not, then the $1,465 is a small price to pay.

b) There is another benefit in that in a shorter amount of time, you get some more free cash flow ($100 per month in this case) that can be used to absorb other unexpected expenses and help you avoid getting into more debt. In this case, we get more cash flow after just two and a half years, versus over 3 and a half years for the more optimal solution.


The method you use is largely up to you – do you value saving the most amount of money, or is the psychological effect of a quicker win more appealing? The important thing is you make a plan and stick to it, and that you are aware of the tradeoffs of each method.

Savings accounts with sub-accounts

Having a bank that makes it easy for you to maintain multiple savings accounts can come in really handy – it can make organizing your finances simpler, budgeting easier, and saving for specific goals a lot easier.

How does it work?

Banks that support multiple savings accounts make it easy to create sub-accounts and give them friendly names (like “Emergency Fund” or “Trip to Hawaii”), and also make it easy to do instant transfers between them (and your checking account). For example, my setup in Ally looks like this:

Screen Shot 2016-01-23 at 2.30.09 PM

As you can see – I have a checking account and three savings accounts (one for part of our emergency fund, one to keep money we set aside every month to pay for car insurance and registration, and one for big purchases). Every month, I transfer a set amount to the car savings account, then split whatever leftover money we have between big purchases and our emergency fund. This is really simple – it took about 10 minutes to set it all up on Ally, and I spend about 3 minutes per month managing it.

Why do it this way?

Setting your account up with multiple accounts makes it easy to keep money separated and know how much you have for various expenses/needs. It also makes it easy to keep your emergency fund separate and not accidentally (or purposely!) spend it on things that aren’t really emergencies.

Do all banks support it?

Not all do, and even fewer make it simple. We have a full list of them here, and the best ones seem to be Ally and Capital One 360. If you know of another bank that supports this, please leave us a note in the comments.

How many accounts should I have?

It is up to you. Some people like to have more granular savings goals – ie, saving for a trip or other specific thing. I prefer to just have a few – one for an emergency fund, one for all big purchases, and one for all expenses that are fairly large but only happen a few times a year (this makes our budget smoother).

Can’t I just track it all in a spreadsheet?

You certainly can, and it isn’t terribly hard to do so. Many people – including me – really like the convenience offered by having them separated in the account itself, though.