Podcast Summary: How to Money - Friday Flight - Credit Score Supremacy, Avoiding Alts, & Points in Purgatory #930

Release Date: January 10, 2025

In episode #930 of How to Money, hosts Joel and Matt delve into three pivotal personal finance topics: the importance and dynamics of credit scores, the pitfalls of alternative investments, and the often-overlooked fate of accumulated credit card points. Skipping over the introductory sponsorship segments, the hosts engage in a rich, informative discussion aimed at equipping listeners with actionable financial insights.

1. Credit Score Supremacy

Understanding Credit Score Changes and Their Implications

The episode opens with a discussion on recent changes to how medical debt is reported on credit scores. Joel highlights a significant policy shift:

Matt (15:11): “The outgoing Biden administration has finalized a rule that is going to end the inclusion of all medical debt on credit reports. Moving forward, we've already seen the removal of sub-$500 medical bills from being reported to credit bureaus.”

This policy aims to alleviate the burden on approximately 15 million Americans by preventing medical debts of any size from negatively impacting their credit scores. However, Joel expresses skepticism about the longevity of this change:

Joel (17:02): “We're literally weeks away from transition to the next presidency, and this could be overturned with a stroke of a pen.”

Despite the potential short-term benefits, the hosts caution that without legislative backing, such changes may be transient, leaving credit scores still vulnerable to other financial missteps.

The Debate on the Relevance of Credit Scores

The conversation shifts to the broader debate surrounding the importance of credit scores. Joel and Matt critically assess advice from financial gurus like Dave Ramsey, who downplays the significance of credit scores:

Joel (19:50): “We advise caring about your credit score, even though [Dave Ramsey] doesn't.”

Matt adds nuance by acknowledging the pitfalls of obsessing over perfect scores:

Matt (20:17): “There are a certain segment of Americans out there who seem to be obsessing over the credit score to an unhealthy degree.”

Ultimately, they advocate for maintaining a "good enough" credit score (above 760), stressing that while striving for improvement is beneficial, extremes can lead to unnecessary stress without substantial financial benefits.

2. Avoiding Alternative Investments

Skepticism Towards Non-Traditional Investment Vehicles

Joel introduces the topic with a reference to a Wall Street Journal piece by Jason Zweig, emphasizing caution against alternative assets:

Joel (26:15): “Jason Zweig... had a great piece on why we should give him the Heisman. We don't want alternative assets in our lives...”

Alternative investments like wine, whiskey, farmland, NFTs, and meme coins are scrutinized for their high fees, increased risk, and reduced liquidity. The hosts argue that these options often do not provide the diversification benefits they claim and can distract investors from more stable, traditional investment strategies.

Real Estate: The One Exception?

While generally advising against alt investments, Joel and Matt concede that traditional real estate investment holds merit, distinguishing it from crowdfunded or digital real estate platforms. They highlight the tangible benefits of owning property, such as local market control and potential rental income, which are not typically available with alternative investment vehicles.

Joel (29:18): “There's a big difference between paying $20 to rent a pickup truck versus financing a $75,000 decked out, whatever fancy pickup truck...”

3. Points in Purgatory: Maximizing Credit Card Rewards

The Reality of Credit Card Points Usage

Transitioning to their third main topic, Joel and Matt explore the often-unrealized potential of credit card rewards. Referencing a Bankrate survey, Joel reveals that nearly a quarter of credit card users fail to redeem any of their accumulated rewards:

Joel (34:28): “Almost a quarter of folks ended up not redeeming any of their rewards in the past year.”

They discuss the common phenomenon of "spillage," where reward points remain unused, paralleling forgotten gift cards. The hosts advocate for strategic use of rewards, suggesting that cash back might be more beneficial for the average user compared to travel points, which can lose value if not utilized promptly.

Matt (35:18): “Where are you going to actually follow through and do the dang thing?”

Best Practices for Credit Card Rewards

To prevent rewards from languishing, Joel and Matt recommend regular monitoring and setting reminders to utilize points. They also caution against over-reliance on credit card points as a primary financial strategy, emphasizing responsible usage to avoid falling into debt.

Additional Insights and Practical Tips

Debt Payoff Prioritization

The hosts reiterate that debt repayment remains the top financial goal for many Americans, underscored by rising consumer debt and high-interest rates. They encourage listeners to leverage tools and resources, such as those offered by Navy Federal Credit Union, to manage and eliminate debt effectively.

Home Improvement and Energy Efficiency

In a segment blending personal anecdotes with practical advice, Matt shares his experience with home insulation. Highlighting the importance of addressing air leaks in crawl space doors, he demonstrates a cost-effective DIY approach to improve home energy efficiency, thereby reducing heating bills and enhancing comfort.

Matt (03:38): “This is a way to avoid spending thousands of dollars on an encapsulation which you may not need.”

Smart Car Buying Strategies

Joel and Matt discuss the advantages of buying used cars, noting that January is an optimal time due to higher inventory from trade-ins. They also touch upon the downsides of renting electric vehicles, citing challenges like limited charging infrastructure, which can make owning an EV a more practical long-term solution.

Joel (08:00): “If you’re looking for a used car, now might be the best time.”

Conclusion

Episode #930 of How to Money offers a comprehensive exploration of crucial personal finance topics, blending expert insights with relatable discussions. Joel and Matt provide listeners with balanced perspectives on credit scores, investment choices, and credit card rewards, all while emphasizing practical strategies to enhance financial well-being. Whether you're aiming to optimize your credit, avoid risky investments, or make the most of your credit card perks, this episode delivers valuable guidance to help you navigate your financial journey.

Notable Quotes:

• Matt (15:11): “...medical debt of any size can no longer plague people on the credit front.”
• Joel (17:02): “...this could be overturned with a stroke of a pen.”
• Matt (20:17): “...obsessing over the credit score to an unhealthy degree.”
• Joel (26:15): “...we don't want alternative assets in our lives...”
• Joel (34:28): “Almost a quarter of folks ended up not redeeming any of their rewards in the past year.”