Will that be credit or debit?
Most of us are used to hearing this question whenever we pull out the plastic from our wallets. Over the past few years, I have flip flopped on my answer to this question depending on my current situation. And now, that I have worked myself out of debt, I think the situation may be even more complex. Let’s go over the history of things to see how we got into this situation.
I realized a few years ago that the best way to get out of credit card debt was to stop using credit cards. So I put them all away, and started using my debit card for everything. This actually had another advantage beyond just keeping my debt down. 
My debit card is with Bank of America and they have a program known as “Keep the Change.” The way the program works is that every time you use your debit card, the change will be put into your savings account. For example, if you spend $2.65 at Starbucks, your checking account will be debited $2.65, plus $.35 will be transferred to your savings account, so your checking account takes a hit for $3.
On the surface this doesn’t seem like any great motivating factor to use your debit card more than you normally would, so Bank of America provides a little more incentive. When you open the Keep the Change savings account, Bank of America will match your contributions to your savings account for the first 3 months, and after that they will match 5% of your contributions. So needless to say, when I first opened up the account I was doing everything I could to maximize the matches from Bank of America. For example, every time I would get gas, I would stop the transaction with a penny. That would net me 99 cents at each fill up. But once the 100% match expired, the 5% match is a lot less attractive. The same transactions would be pulling in 4 or 5 cents, instead of 99. Still, it was a nice benefit to using my debit card which I wanted to do anyway to keep my credit card bills from growing.
So now let’s fast forward a bit. I used my debit card instead of credit cards. I did some 0% interest balance transfers.
I lived a little thrifty for a few years, and it didn’t hurt that I got a better job, but I got out of credit card debt, and finally could take advantage of some of the reward programs that credit cards offer without the guilt of carrying a balance. Currently I am working on frequent flyer miles for Hawaiian Airlines. Stacy and I flew first class to Maui for our honeymoon which scored us a nice chunk of miles. Then I opened up the Bank of America Hawaiian Airlines credit card, which scored me 20,000 bonus miles. And now, in just 6 months I have more miles than I need for a first class flight from California to Hawaii.
Up until very recently I thought I’d keep using my Hawaiian Airlines card exclusively and racking up maximum mileage, but I have decided to implement an experiment to try and maximize my returns from the two cards. For large purchases, I will continue to use the credit card, but on smaller purchases I will try and institute an algorithm to determine which card to use. For purchases under $10, I will use my debit card if the change is less than fifty cents, and I will use my debit card for all purchases under $5.
The code might look something like this:
if $cost.dollars >= 10 then Pay.useCreditCard()
elsif $cost.dollars >= 5 and $cost.cents >= 50 then Pay.useCreditCard()
else Pay.useDebitCard()
The main reason for this is that I want to put together a savings plan and portfolio with the money that I earn through Keep the Change. The idea is that I will take the money I have in the savings account now, and invest it. I’ll track this independent of my other portfolios and see how the returns compare to the interest rate of the savings account. Right now I am thinking that I will invest in a combination of Lending Club and high dividend paying stocks.
What about you?
I’d love to hear what others are doing in their own situations. I like to think I have a pretty good system going, but I’m sure that smarter people out there have done their research on this topic, and come to their own conclusions.