For Careful Converts,
A Big Monthly Payoff
By Albert B. Crenshaw
(c) The Washington Post
Sunday, May 28, 1995; Page H04
Three years ago, Jim and Amy Angel joined the plastic revolution.
After a lifetime of using cash and checks for almost all of their daily expenses, the Arlington couple
switched to running every possible household expense through their credit cards.
In their case, though, their conversion was not a matter of sinking hopelessly into debt. Far from it.
The Angels, like millions of other American consumers today, are taking advantage of the rebates,
frequent-flyer miles and other premiums that holders of many credit and charge cards now can
earn.
"I used to pay cash for everything," said Jim, a professor of finance at Georgetown University. "I
didn't like using credit cards because I'd be surprised when the bill came. . . . I'd forget I'd bought
something, and since I pay off in full each month, sometimes it would be a nasty surprise."
Angel, perhaps because of his profession, had been aware that using a credit card and paying it off
would have allowed him free use of his money for a month -- the "float" -- but that advantage
wasn't enough to convert him.
"But when I noticed cards giving cash rebates, I started saying, Hey, not only am I getting free
money for a month but I get a bonus for using it,' " he said. And on top of that, "I don't have to
carry cash, and I get extra good records" of expenses, he said.
So the Angels jumped on the bandwagon. Their main card is a General Motors Corp. gold
MasterCard that will earn them a discount on a GM car. So far they have almost $2,000 worth of
credits toward a new car, and though "ordinarily I wouldn't buy a GM car," he said, the hefty
discount generated by routine household outlays they would have spent anyway made it "too good
a deal to pass up."
Millions of Americans today agree with those sentiments. So-called co-branded credit cards --
those with tie-ins to other businesses and institutions -- are by far the fastest-growing segment of
the industry. The premiums that are available range from free long-distance calls to rebates on
cars, gasoline and groceries, to frequent-flyer miles, to simply cash.
When these premiums were first announced, experts worried that they might encourage
cardholders to add unnecessary debt. But while there has been some of that, many cardholders do
seem to have the self-discipline to pay their bills, take the premiums and not run up interest charges
that at the very least wipe out the benefits of the programs.
And the benefits for people like the Angels are quite real, experts say.
"There's no question that people who charge a lot and pay their bills off in full are getting something
for nothing," said Ruth Susswein of Bankcard Holders of America, a consumer group based in
Salem, Va.
She cautioned that the benefits are real only for cardholders who do pay in full each month.
Most cards offering these premiums have high interest rates, so consumers who carry balances are
better off finding a low-rate card, she said.
But for those who pay off, "it's a terrific opportunity," she said.
And for the Angels there have been other benefits, as well.
They have married the good records created by their credit cards to their home computer to
manage their family cash flow. Whenever they charge something, they shove the receipt into a
wallet or purse and every few weeks they dump them out and he enters them into the computer.
Using the Quicken software program, they not only can see their total expenses, but the computer
sorts all the outlays by category so they know instantly how much went to groceries, how much to
eating out, how much to gasoline, and so on.
Before the children came -- they have Betsy, who will be 3 in July, and William, who turns 1 on
Friday -- they tried hard to keep track of their expenses, but it was difficult to remember where
the cash went.
They always paid cash for gasoline, for example, "so when there was $20 I couldn't account for,
we would say, Have you been to a gas station?' " Amy Angel said.
Now, with the computer and the credit card receipts, they easily can account for almost every
nickel.
"When the {credit card} bill comes I usually know within a few dollars what it's going to be. It's
something that prevents bill shock -- Omigod, we owe how much?' " Jim said.
Because they write few checks, the arrangement allows them to use the same bank account
without having to worry about who wrote a check for what and whether something's going to
bounce, he said. And as a family of four with one full-time paycheck -- she teaches childbirth
classes part time -- and with a mortgage, they "have to be real careful" what they spend, he said.
"There's not that much left over."
The category-by-category records make it plain where their money goes, both said, and while it
doesn't increase their income it does allow them to make informed decisions about spending.
For example, Amy Angel "did all the renewals and ordered all the books to keep up my
certification" as a childbirth class teacher at the end of last year. Because they had a crunch after
Christmas, "it would have been better for me to wait until January," she said. Next year she will.
It also forces them to be realistic, both said. They can't delude themselves that they could always
cut out something they don't spend on anyway, he said, and they are forced to recognize that some
expenses may be irreducible.
Their biggest expense is their mortgage, followed by food and taxes, Jim said. Last year, he said,
food, both groceries and a modest amount of dining out, totaled about $7,000. They keep
transportation expenses down by driving their cars well past the six-digit mileage mark, and he
rides his bike to school in good weather.
"A lot of it is accepting that we need to spend so much money. There isn't any way to budget out
food. We're feeding four people," Amy Angel said. All they can do it try to keep it to the minimum.
"I like macaroni and cheese -- what can I say," she laughed.
IN PROFILE: JIM AND AMY
ANGEL
Ages: He's 36; she's 35.
Hometown: Arlington.
Jobs: He's a professor; she's a homemaker and
teaches childbirth classes.
Financial strategy: Using credit cards and a home computer to manage
the family's finances while cashing in on the cards' rebate programs. They are well on their way to
a big discount on a GM car, and in the process have created complete records of their expenses.
"It's a big benefit," he said.
Investment strategy: A family of four on one regular paycheck in the
Washington area doesn't have a lot of free cash, so they try to maximize their retirement saving.
With retirement saving, Jim has "extremely long time horizons," he said, and therefore concentrates
on the stock market. "Even though I think stock prices are at a peak, I can't time {the market}, so
I rely on the historical experience" that shows that "even if you invested at the market's peaks,
including 1929 and 1987, almost always 20 years later you would be better off being in the market
than in Treasury bills."
What they would do with $1 million: "I don't play the lottery, so I don't
really expect that to happen," said Jim. But if it did, they would probably pay off some bills, pay
down the mortgage a little bit and then take a nice long vacation, he said. Beyond that, they would
make a generous donation to their church and then invest the rest in a well-diversified portfolio of
stocks with a small mix of bonds and real estate, he concluded.
Chimed in Amy: "If he hasn't said
an addition to the house, he hasn't thought it through." "Yes, clearly, an addition to the house," Jim
replied.
