When life gives you lemons…
You need expensive dental work done, a new air conditioning system, you are signing up for life insurance, or you have an expensive car repair coming up. It sucks when you have to spend money that you weren’t planning on, but you can at least make the most of it.
Churn and burn
When we have a big unexpected expense, we try to make an opportunity out of it. I go check what credit card promotions are out there with big sign-up bonuses that we are eligible for. We find what the total expense is estimated to be and apply for as many cards with promos we are interested in that we can meet the sign-up bonuses for.
I recently had to get $2000 of dental work. Many credit cards offer lucrative bonuses starting as low as $1000 of spending during the first three months of card membership. For this $2000 expense, I applied to and paid with:
- A cash back card that offers a $150 statement credit after spending $500
- A cash back card that offers $100 statement credit after spending $1000
- A card that gave me 50,000 airline miles after spending $1000
- (normal expenses rounded it up to $2500)
Last year we had a $4000 expense. For that expense, we got enough points between two cards for two nights at a 5-star hotel + first class airfare for two + rental car in New Orleans.
Make the best of a bad situation
Once you get over the initial frustration of needing to spend money you didn’t plan on, go check what credit card promos you are eligible for and see if you can make the best of a bad situation. Spending $4000 sucks. But getting $800+ of hotel nights and $800+ airline tickets and $100+ rental car really defrays that cost. In that case, it was ~$1700 off of $4000, or a 42.5% cost effective discount ($1700/4000)
FSAs and HSAs
In the case of medical bills, if you utilize your FSA or HSA to fund the transaction, you also get tax benefits stacked on top. Instead of paying directly with your FSA or HSA debit card, pay with your credit card, and then file a claim with your FSA or HSA to receive a check or direct deposit reimbursement. Then pay off your card. Now you just saved 20%+ in taxes, turning a $4000 expense into ~$3200 effective cost and then received ~$1700 value of credit card perks reimbursed on top of that. Suddenly that $4000 expense looks a lot more like $1500 (4000 – 20% – $1700).
Now your unexpected medical bill is $1500 instead of $4000. And now you have an unexpected prepaid vacation to plan. I call that making the best of a bad situation.