Paying Down Your Mortgage

Would you like to save money on your mortgage? Who wouldn’t? Citibank says you can save $15,640.37 and shave off 10 months from a $250,000, 30-year mortgage at 6.25%—if you use the Citi Home Rebate card. Rebates are automatically applied to the outstanding balance on your mortgage.

Imagine that—increasing your net worth by $15,000 just by using a particular credit card! Bear in mind, though, that a return like this takes many years and the continued use of the reward card to achieve. This particular example assumes monthly charges of $1,500 on the card for the entire life of the mortgage.

This category includes a few other cards. For example, Wells Fargo introduced a similar card in 2007. This sort of reward—offered in conjunction with other banking products— seems to be a growing trend.

On the surface, using a credit card to pay down debt seems so counterintuitive. But if there’s a hitch, I haven’t found it. You can truly use these unconventional reward cards to your great advantage ($15,000, great!) if you use them wisely. Also, there’s a lot of value in the automated, forced savings principle associated with these cards, especially for homeowners who have a hard time saving.

The main drawback that I see is that these cards typically offer only a 1% rebate on all purchases. Frankly, you can earn a higher return with a lot of regular cash-back cards. Then, if you want to pay down your mortgage, you can simply apply your cash rebate to your mortgage yourself.

• Setting Aside a Little

We all know it’s important to save for emergencies and retirement. But when it comes right down to it, at the end of the month, not much might be left over. A relatively new breed of reward cards offers a convenient way to help jumpstart or supplement your savings.

These cards have great appeal because your rebate can automatically be deposited in brokerage accounts or high yield savings accounts—or even in tax-deferred retirement accounts like traditional IRAs and Roth IRAs.

I particularly like the concept of putting rebates in tax advantaged accounts and having that free money grow for the future. Keep in mind that if you choose to contribute to a tax-deferred account, the rebate normally counts against annual contribution limits set by the IRS. At the same time, if the account is a tax-deductible IRA, you might be able to deduct the rebate as a contribution to the account.
(Consult your tax advisor for more info.)

• Increasing Your College Savings
Are college expenses in your future? Reward cards that apply your rebate to a 529 college savings plan might be a good option. Significant tax advantages accompany making deposits into these accounts. Although you probably won’t earn near enough for full tuition, every little bit helps! The rebate and contribution limits vary from program to program, but all rebates you earn go toward the maximum allowed contributions to the 529 savings plan associated with the card.