Navigating the World of Credit Card Rewards
Since the beginning of the year, I've been all-in on bettering my understanding of credit card rewards. This falls in line with my somewhat unhealthy infatuation of the role finances can play in life optimization. How can one get the most bang for their buck, especially with those same dollars they would normally already spend on a day-to-day basis?
What I've experienced so far is that this game does have a bit of a learning curve and all rewards offerings are certainly not created equal. Also, if played properly, the upside benefits can be extremely lucrative making them flat-out irresponsible to ignore. Therefore, I am writing this piece to help you narrow that learning curve to better break into the rewards game. Included here is a breakdown of the core implementation process to help maximize your rewards, my current household strategy, and then a list of some articles/guides that can help in development of (and inspiration for) your own rewards journey.
Maximizing Your Rewards
Some credit card issuers will lead you to believe that their cash back rewards rate of 1.5% is the best you will find simply because it beats most companies base cash back rate of 1%. Sounds convincing, but this is straight up non-fried bologna! Run through these 4 steps to help ensure that you are on a smarter path to fully maximizing your rewards.
- Determine what you're already spending your money on
Specifically, break down your spending into 5 general categories: gas, groceries, restaurants, travel, and then everything else. Many rewards cards will give you different bonuses back per each of these various categories. Once this is known, you can use one of the Credit Card Comparison platforms to help pinpoint your perfect rewards match.
- Determine what you want your rewards objective to be
Specifically, are you looking for cash back or travel rewards? There is a world of a difference here as some travel cards can be much more lucrative than cash back cards, but only if you use them for travel. Trading earned travel points for cash can bottom out your rewards rates.
- Determine if you want to be a short-term, or long-term player
Specifically, you should evaluate if you feel more comfortable cycling through cards with a focus only on signup bonuses, or if you want to find a card that best meets your rewards objectives over the longer-term. Playing the signup bonus game will take more effort, but can also be more rewarding.
- Determine any redemption (or transfer) bonuses for your rewards earnings
In all fairness, this is an area where I'm still learning myself. Some card issuers will give you redemption bonuses which can enhance your rewards. In addition, some cards will also allow you to transfer your rewards to other providers for a further bonus. Sites like The Points Guy do a great job of helping you determine this all-in rewards value.
Strategy for House Sutherland
As mentioned, we began our personal journey to credit card optimization just this year (2018). Previously, I dabbled as somewhat of an amateur in this space by solely focusing on everyday cash back credit cards such as the Discover it card and the super dependable Citi Double Cash card (which I still love). However, the Sutherland household is now on a mission to supercharge our rewards game by opening up ourselves to those highly incentive-laden travel perks, in addition to tidying up our cash back rewards. The strategy looks a little something like this.
- Travel Rewards
I will open (and have opened) up a Chase Sapphire card for myself, putting all household bills I can on this card until the bonus spending requirement of $4,000 over the first 3 months is met. This will produce roughly 55k in Ultimate Rewards points (5k for regular spending + the 50k bonus). We will then repeat this process for my wife. Afterwards, we will go through the same process with the Chase Ink Business Preferred card which should net us an even more lucrative 86k in Ultimate Rewards points each via a $5k spending requirement over the first 3 months. Next, we will rinse and repeat with the Southwest Rapid Rewards card which should gain us an additional 41k in points a piece on a $1k spending requirement (in addition to hopefully obtaining us a Southwest Companion Pass). In all, we could end up with 364k in points which would conservatively land us $5,460 in free travel through the Ultimate Rewards portal (which gives us a 50% boost in points value). But more significantly, if we play our cards right through proper use of transfer partners, this could end up providing us with 2 (or more) times as much value. To recap, these travel points could potentially produce over $10k of travel money for spending a sum of $20k that we were already going to spend in the first place! Insane? Yes, indeed.
- Cash Rewards
My go-to rewards incentive (cash) has now taken a back seat, but that doesn't mean it can't be improved. In analyzing our household spending trends, I noticed that we weren't taking full advantage of our potential cash back rewards. We spend a significant portion of our discretionary household expenses on gas and groceries, so I wanted to find the card that would pay us most handsomely for these categories. My findings produced the American Express Blue Cash Preferred card. It does have a $95 annual fee (which I hate), but the benefits (6% back on groceries and 3% on gas) will outweigh the fee for House Sutherland. In addition, we signed up for the Amazon Prime Rewards card (no fee with a Prime membership) which gives us 5% back at both Amazon and Whole Foods. Overall, I see us cumulatively earning between 4-5% back on most of our discretionary household spending needs, which should get a nod from even the most hard-nosed efficiency gurus.
A common concern: But what about your credit score, you ask?! Won't opening up all these credit cards ruin your credit profile?? Not necessarily. If (I repeat, IF) responsible with you credit (aka, you pay in full every month) these inquiries for new cards will only be a seemingly insignificant and temporary blip on your credit score. For example, below is my FICO score history dating back the summer of 2017. You will notice a slight dip in my score both last fall and just recently. Last fall I explored investment property financing with 2 different banks, and this spring I began this enhanced rewards journey that led to the opening of 3 new credit cards. While slight drops have occurred (and will occur) due to credit inquiries, what you should take note of is how minimal those drops are and how quickly the scores tend to bounce back. Therefore, please don't let the fear of credit score ruin prevent you from beginning your own journey into taking your dollar further.
Helpful Guides / Articles
As I've been on this path to enhancing my credit card rewards IQ, here is some content that has been extremely valuable in providing both education and motivation. Take a look. I hope these pieces will do the same for you.
How to Choose a Rewards Credit Card
If new to rewards credit cards, this article by Nerdwallet provides a nice overview of the basics. It's a good starting point for helping to educate yourself on the perks and ancillary considerations to keep in mind.
How to Travel for FREE in the U.S.
Written by Bob Lotich of SeedTime, this piece is a no-nonsense guide on how Bob and his wife have been traveling the country for free (flights and hotels) for the past 5 years. It's not a short article, but it's written clearly and with valuable detail. This one was a game changer for me.
The Chase Guantlet
The team at ChooseFI has a lot of valuable information for travel rewards/hacking both on their site and podcast. This particular piece highlights an implementation strategy to rack up some serious Chase Ultimate Rewards points. I've taken specifics from this outline in piecing together my own strategy.
How I Spent Only $14,000 Taking $195,000 Worth of Trips Around the World
This article was written about Daraius Dubash of Million Mile Secrets. It is a quick read that has some great pointers on how to make the most of your travel rewards. It's also an extremely motivating piece if you are still on the fence about jumping into the rewards game.
There you have it. This certainly is not an all-inclusive guide to credit card rewards, but I hope you found something here helpful or motivational. As mentioned, I am still well within the learning curve for how to get the most out of the credit cards rewards ecosystem, so if you have any additional insight, tips or valuable resources, please do share!