Do This: Maximize Rewards Credit Card Use

To wrap up this week's "Stretch" Your Spending series, I'm going to focus on maximizing cash back returns on day-to-day spending via reward credit cards.  Please note, this tip is only for those that pay off credit cards each month, do not carry balances, and use credit responsibly.*

My two key points for using reward credit cards are:
  1. Charge everything!  Unless there's a fee or surcharge for using a credit card, use a reward credit card for all purchases.  The U.S. Treasury does not have a rewards program where they'll rebate you a penny for every dollar bill you keep in circulation, but reward credit cards will essentially pay you to use them.  Most rewards credit cards will give you back at least 1% of your charge in rewards, which brings me to my next point...
  2. A 1% return for a rewards card is not good enough!  By using the right credit card on the right purchase, you should be able to get 2% or more in rewards on every one of your purchases.  
Before I go into details, I must first acknowledge that valuing credit card rewards is a complex topic.  Each person can value rewards programs differently, with some believing United miles or Starwood points are worth the most while others prefer cash back or another one of countless hotel or airline programs.  To keep it simple, in my discussion below, I will categorize all earned rewards as points and, unless I say otherwise, each point is worth one penny.**  Furthermore, I will not examine any reward cards tied to a single frequent traveler program, as I see them having less and less value as their points are consistently being devalued (see recent Hilton, Starwood, and Marriott points devaluations).  

Easiest Way to Earn 2% on Every Purchase
  • Fidelity American ExpressThis card offers 2% cash back on all purchases when you deposit your rewards directly into an eligible Fidelity account.  Personally, I do not have this account, but it may be intriguing for a lot of people because it has no annual fee and your reward is cash.
  • Barclay Arrival: This card gives you 2 points per dollar, which is essentially worth 2.22% cash back, on every purchase.  However, you can only use your points as statement credits on travel-related charges.  For example, let's say you charge a $212.20 hotel room on your Arrival card.  You could then turn around and apply 21,220 of your points as a statement credit to remove the hotel charge.  On the plus side, Barclay will then turn around and return 10% of the points you just redeemed, redepositing 2,122 points back into your account for future use.  That extra 10% rebate on redeemed points is how I came up with 2.22% back on every purchase.  This card carries an $89 annual fee, which is waived the first year, and currently offers a 40,000 bonus points opportunity for new cardholders.  I've had this card for a few months and can confidently recommend it, at least for the first year with the waived annual fee.  
Let's Get Crazy - My Wallet

Stretching 2% out of my purchases via credit cards isn't good enough for me.  Below, I'll tell you about the credit cards I carry in my wallet, which will hopefully provide you some ideas as to how you can stretch even more value from credit cards.***
  • Chase Freedom (no annual fee): 5% cash back at gas stations (current bonus category), with merchant categories changing quarterly based on the Freedom Calendar.  From October-December, the 5% rewards apply to Amazon and select department store purchases.  5% rewards are capped on $1500 in purchases ($75 in rewards) per quarter and all other spending receives 1% cash back, which means I only use this card for the quarterly bonus categories.  Offers a $100 sign-up bonus for new customers.

2013 Chase Freedom Calendar

  • US Bank Cash+ (no annual fee): 5% cash back at all restaurants (my selected two categories for the quarter), with merchant categories changing quarterly.  Unlike the Freedom card, Cash+ cardholders get to choose two classes of merchants from among approximately ten categories for the 5% bonus and purchases are capped at $2000 per quarter.  This quarter, I chose restaurants and fast food dining as my two categories to ensure I had full coverage when eating out.  You can also choose one category from among gas stations, pharmacies, or grocery stores to earn unlimited 2% cash back. Like the Freedom, all other purchases earn 1% cash back (blech). You can supposedly only apply for this card in-person at a US Bank Branch, but someday I'll share the story of how I got this card over the phone.  
  • Chase Amazon (no annual fee): 3% back on Amazon purchases.  I use this card on all my Amazon purchases.  Points (each point is worth a penny) can only be redeemed for future Amazon purchases, but it's seamlessly integrated with your Amazon account so that you can easily use your available points as payment at checkout.  The card also gives 2 points (2%) per dollar spent at gas stations, restaurants, and drug stores.  Offers a $30 instant gift card for new customers upon signing up.
Amazon 3% and 2% Rewards Accrual
  • Chase Sapphire Preferred ($95 annual fee): At least 2% back on all travel-related and restaurant charges.  This is one of the best reward credit cards because not only can you redeem your points for cash (1 point = 1 penny), you can also use your points to book travel through Chase at an increased rate (1 point = 1.25 cents) or transfer points to Chase travel partners that include United, Southwest, Hyatt, and more.  When you transfer your points to travel partners (at a 1-to-1 ratio), you can get incredible value from your points, especially through United and Hyatt.  There are many other benefits with this card, so I recommend reading up on it.  I highly recommend it and have no qualms about paying the annual fee every year.  There is currently an offer of a waived first-year annual fee and 40,000 bonus points opportunity for new customers. 
  • Barclay Arrival ($89 annual fee): 2.22% back on all purchases.  Finally, I'll use this card for all of the outlier purchases that aren't covered by the aforementioned cards and rotating categories.  When I'm ready to use my Arrival points towards a travel charge, I'll of course make that payment on this card.  I'll revisit keeping this card in the rotation when the annual fee kicks in next year.
Wrapping it Up

Through targeted use of the credit cards above, I always stretch my credit card spending by 2-5%.  This turns into a very significant amount of money every year.  A few additional notes:
  • I've accrued these credit cards over a few years.  Don't try to get all of them at once (see *** below).
  • My summaries above only include the highlights of each card.  Most of the cards have additional benefits I didn't detail.  Likewise, this is only a snapshot of available consumer credit cards. 
  • Factor in the annual fee on the Chase Sapphire Preferred and Barclay Arrival when determining if the cards are right for you.  A benefit of the Sapphire Preferred card is that it pays cardholders a 7% dividend on points accrued at the end of the year.  I redeem that dividend as cash to "reduce" the cost of the annual fee.
  • I have other rewards credit cards, but those detailed above are the only ones I regularly use.  I'll probably revisit other credit card topics, like why I keep but rarely use my Marriott Rewards Premier Visa, in the future.
  • If you have any questions, leave a comment below and I'll answer it.

*This is because rewards credit cards typically have higher APRs, which means you'll be paying more in interest, negating the value of the rewards.  
** Before getting a new credit card, understand what each point is worth.  Some credit card issuers will offer points that have a lesser value than 1 cent each.
***If you decide to apply for any of these credit cards, please keep in mind that credit inquiries can negatively affect your credit score.  If you are going to be soon applying for a mortgage or car loan, I do not recommend applying for a new credit card.  Research and understand how credit inquiries affect your credit score.  Someday I'll learn how to do footnotes.  

No comments:

Post a Comment