In thinking about what I wanted my first blog article to be about, I wanted to immediately give you something of value. So, I decided to write about something about which I am truly an expert and that can make a real difference on your path to early retirement, financial independence or whatever your goal happens to be. This subject is one that’s really close to my heart since I have been working in the payments industry on and off for the last 10 years. It’s been my job to help companies figure out how they can make money on you. And, now, I’ll tell you all of the loopholes that banks and credit card companies don’t want you to know about.
But, maximizing your credit card usage is kind of like chess. It’s easy to learn the basics but could take a long time to truly optimize. I mean, anyone – literally anyone – could save $500 a year by simply getting the best general purpose, cash-back credit card out there (I’ll tell you what that is later) and putting as many of their legitimate expenses on it. By legitimate, I mean stuff you would have bought anyway.
Here’s a great example of how people can mess it up, though. I’ve seen so many people get a credit card like the REI MasterCard which pays 5% cash back on all purchases at REI plus you can get another 10% back at the end of the year if you pay a one-time membership fee of $20. “Holy shit”, they think, “15% cash back”. Instead of buying the $400 worth of essential camping equipment that they planned, they load up and buy another $600 worth of stuff they didn’t need in the first place. So, instead of saving $40 ($400 in purchases x 15% cash back – $20 membership fee) , they end up wasting $470 because they bought another $600 of stuff that they really didn’t need in the first place. SHOCKER – this is exactly what REI and the banks they work with want you to do.
( … now for the good stuff )
First, let me tell you some of the high-level strategies that I employ and then I’ll give you a detailed accounting of how I saved $4,500 last year. Obviously, I don’t stop at getting the best general, cash back card, like I alluded to before, I load my wallet up with 10 or more cards at any given time and use the card that is going to save me the most money. And, by the way, that’s almost always at least 4% of what I spend and frequently much more. So, here are the cards that I have …
- A Gasoline Card – my gas card of choice is the PenFed Platinum Cash Rewards VISA Plus Card which pays 5% cash back on all gas purchases. This card is issued by the Pentagon Federal Credit Union, which is kind of like USAA. No one, in my family is a member of the military, so why, might you ask, did they let me sign up and take advantage of their great little perk. It was a bit convoluted, but our gas bill is at least $100 per week, so the 5% adds up. Here’s how anyone can get this card. Sign up for Voices for America’s Troops (a public advocacy group) and then they will let you join their happy little credit union. Then just sign up for a savings account, which you can fund with as little as $5, and you qualify for the PenFed Plus Card.
- Store Cards – I consolidate most of my spending at a very small number of stores who offer lucrative cash back rebates on in-store or online purchases – usually 5%. It’s not a huge hardship to consolidate purchasing, and hey, if I want to go someplace else, I use my catch-all card and still earn 2% cash back. Here are the store cards that I currently have.
- BJ’s – All 3 warehouse stores (Costco, Sam’s Club, and BJs) operate within 10 miles of where we live and, to be honest, I am kind of partial to Costco. But, the 5% cash back versus 2% at Costco was enough to make me change my preferences.
- Target – This is a store that we should shop at anyway for house goods and kids clothes, even if they didn’t have a 5% cash back card. The really interesting thing is that Target pays 5% cash for both their credit and debit card, so we opted for their debit card because every credit card application inquiry dings your credit score a teeny tiny bit.
- GAP – The thing that I love about GAP card, besides their 5% cash-back is that you can earn or redeem rewards in any of the stores owned by GAP. So, that means Banana Republic and Old Navy are also included.
- Lowes – We don’t make more than a few hundred dollars’ worth of home improvement purchases a year, but this is still a nice card to have. We got it a couple of years ago, when we remodeling our kitchen and bought $5000 worth of appliances because they give you a bonus of an additional 5% off on your first purchase – and 10% off of those appliances was $500.
- Amazon Card – I could very easily have grouped the Amazon card with the store cards, but Amazon accounts for such a large percentage of our purchases, that I wanted to include it as a separate category. But, it is in similar to other store cards in that it pays a 5% rebate. We probably spend as much on the Amazon card as all of our other store cards combined. The one caveat is that you have to be a Prime member (not a huge burden for us, since we love Prime).
- Travel Cards – Now the interesting thing with travel cards is that the most of the money that you save is due to the large sign-up bonuses that they offer and not the cash-back rebate from spending on the cards. The real key is to rotate travel cards so you get that hefty sign-up bonus every year from a different airline and a different hotel. Many of these cards have a yearly fee, so you have to weigh that against the bonus miles. Another thing that you will want to do is time these card offers. The airlines and hotels will frequently up the sign-up bonus for a month or two if they are running behind their estimates. One final thought is that we include some of the high-end Citi, Chase and Amex Cards in this category because you can easily transfer points to miles or hotel points. With that in mind, here are the cards that we have now.
- American Airlines (my airlines card) – I played the timing game and got a 50,000 mile bonus when I signed up for AA’s mid-tier card, the Citi AAdvantage Platinum Select MasterCard, which has a $95 annual fee. Normally, the bonus is only 30,000 miles, so getting the timing right allowed me another domestic flight for free.
- Delta Airlines (my wife’s card) – She got a 30,000 mile bonus for this card which waives the $95 annual fee for the first year.
- Marriott Hotels (my hotel card)- This card comes with a generous 80,000 mile sign up bonus and a $99 annual fee.
- Starwood (SPG) Card (my wife’s hotel card) – She got a 25,000 mile bonus and they waive the $95 annual fee for the first year. We got lucky on this one, because Marriott and Starwood recently merged and so did their rewards programs. So you can use points interchangeably.
- Chase Sapphire Reserve Card – This card has a $450 annual fee, but came with a whopping sign-up bonus of 100,000 points and they reimburse $300 worth of travel purchases yearly. Officially this offer has ended, but I heard that you can still get the 100,000 points offer if you apply in a Chase branch.
- General Purpose Cards – And last, but not least, there are the general purpose cards. These cards pay 2% cash back and should be used – well, when no other card can beat the 2% for the purchase category you’re spending in. Citi’s Double Cash card falls into this as do a couple of the Fidelity Investments Cards. We have one general purpose card.
- Fidelity – We chose the Fidelity Visa Signature card. As advertised, it pays 2% cash back with no limits. The one downside is that you have to deposit the proceeds into a Fidelity investment account (which we have, so not an issue). One quirky nice feature is that they will allow you to put the cash back into a 529 investment account which appreciates tax-free free for child’s education.
So there you have it. Between my wife and I, we have 11 credit cards that offer cash back or mile/point, plus we have the somewhat unusual Target debit card that also pays 5% cash back. Hopefully, this is the information that you were really after, but, as promised, I will also detail just how much money these 12 cards saved for us in the last calendar year.
|Credit Card||Annual Spend||Reward Value|
|PenFed||$5,012||$250.60 cash back|
|BJs||$3,117||$155.85 cash back|
|Target||$2,089||$104.45 cash back|
|GAP||$973||$48.65 cash back|
|Lowes||$412||$20.60 cash back|
|Amazon||$4,859||$242.95 cash back|
|American Airlines||$1007 + 50,000 bonus miles||2 (offseason) RT tickets to Costa Rica valued at $1,268|
|Delta Airlines||$1087 + 30,000 bonus miles + $50 statement credit||1 (offseason) RT ticket to Costa Rica valued at $684 ($634 + $50)|
|Marriott||$3,018 + 80,000 bonus miles|
|Starwood||$3,091 + 25,000 bonus points||worth 3X the points when converted to Marriott points|
|Chase Sapphire Reserve||$4,023 + 100,000 bonus points + $300 travel credit||converted to Marriott points|
|( Marriott, Starwood and Chase points redeemed for a 7 night stay in Costa Rica valued at $1,708 )|
|Fidelity||$3,763||$75.26 cash back|
For a grand total of – drumroll please – $4,558.36. Now, admittedly, $3,660 or 80% of the value that we received last year was realized in a 8 day / 7 night vacation that we took to Costa Rica.
Now, my monthly burn might be a little higher than yours – we regularly put between $30,000 and $35,000 on our cards annually. But, if all you did was to judiciously use travel cards, just about anyone could accumulate enough miles to fund a great vacation (at least the airfare and hotel stay.