Lately, I’ve gotten interest from several of my friends about how to play the credit card game optimally. I’ve decided to collect some of my thoughts and opinions on the subject into this single post. To be clear, I am not any kind of finance professional, the following simply reflects my advice and guidance on the matter based on my personal experience. If you find my advice useful and decide to sign up for any of the cards I’ve mentioned, I’d appreciate if you’d use any referral links I’ve provided where applicable so I get the referral bonus (at no cost to you!). Thanks!
Why Play the Credit Card Game? (and How to Avoid Getting Burned)
Simply put, it can be a great way to earn a couple extra bucks or save up for travel simply for your daily spending. Which of these is the case is simply a matter of personal preference and approach.
Furthermore, putting your spending on credit cards can come with a host of ancillary benefits. For example, it’s often far more straightforward to dispute fraudulent transactions if you purchased something using a credit card rather than a debit card. Some cards also carry various extended warranty, cell phone protection, and/or purchase protection benefits that really save you some money when things break unexpectedly.
However, as Uncle Ben says, with great power comes great responsibility, and for you to actually reap the rewards of your credit card gamesmanship, it is essential that you remain responsible. Rule number 1 of choosing to play the game, or “churn” credit cards as some call it, is that you absolutely should pay off your cards in full every month without holding a revolving balance. The interest rate on credit cards is generally of an absurd enough level that if you carry a balance on it, you will quickly pay enough in interest to negate whatever rewards you may be earning on the card. Treat your credit card ultimately no different than a debit card, don’t change your spending habits for the sake of using a card, and make sure any signup bonus on offer you can get without radically altering your spending.
The First Big Question: Cashback or Rewards?
Rewards credit cards can be divided loosely into two different branches: cashback cards and rewards cards. This division is muddled a bit by the fact that many card issuers will advertise cards that earn ‘points’ back but aren’t good for anything besides redemption to statement credit or direct deposit, effectively making it a cashback card. For the purposes of this article, cashback cards are any card where the primary method of redemption is in some form of cashback like the above, while rewards cards are cards where the points you earn can be transferred to various rewards partners (hotels, airlines, etc).
Cashback cards are arguably the simpler model. Your simply get x% back for every dollar your spend on the card. What % you get back may be variable across different categories – for example, 3% back on restaurants or 2% back on grocery stores – or be constant – e.g. 2% back on everything.
Rewards cards are more complicated but can provide greater value if you put in a little legwork. They operate on a similar X points per dollar model, and the X may differ by category – for example, 4 points per dollar on groceries and 3 points per dollar on airline tickets. These points can then be transferred to a variety of partners, or be redeemed as cashback at an often non-optimal value.
Key Considerations: What You Spend On, How Much You Spend, and the Sign Up Bonus
Unless you simply don’t want to think about it and want to stick to a constant cashback/rewards card – for example, the Capital One Quicksilver (referral) with 1.5% back or the Citi Double Cash with 2% back – it is important to have an idea of your top spending categories when you decide to pick a card. For example, if you spend the most money on groceries and restaurants, you should try to get a credit card that gives you the most back on those two categories.
You’ll also want to have an idea of how much you spend in each of these categories and overall. This is especially true when it comes to credit cards with annual fees. You want to make sure that the rewards value of your earnings in a year exceeds the annual fee you’re paying to be able to earn those rewards – otherwise, it’s pointless.
Lastly, try to get a card that has a decent sign-up bonus assuming you can meet the spend requirement – e.g. “spend $x,000 in the first y months after opening for 50,000 points!”. All other things being equal, IMO you should go for the card with a larger signup bonus. After you establish a stable portfolio of cards, you can also end up sign-up bonus hunting to make some nice pocket change (as long as you don’t mind the hard inquiries on your credit report).
PS: If you plan to travel abroad a lot, also make sure whatever card you get does NOT have a foreign transaction fee. Nothing sucks as much as paying a 3% surcharge just to spend your own money.
My Active Portfolio
Though I may switch off to chase various signup bonuses occasionally, my stable portfolio as of now is as follows. I note and comment on the current signup bonuses as time of writing, but they may have changed by the time you read this/may be different if there are targeted offers – make sure you click through or look it up to see what the current offer is/how much you need to spend to get it.
American Express Gold Card (referral): $250 annual fee, 4pt per dollar on dining (including delivery) and US supermarkets, 3pt per dollar on airline tickets from airlines, 1pt per dollar everything else, $10 dining credit each month, $10 Uber credit each month. This card carried its weight during the pandemic – what did we do besides get groceries and delivery? – and continues to be one of my mainstays even as the pandemic winds down. I’ve also gotten a lot of mileage out of the extended warranty benefit, as electronics often don’t last long these days.
Signup bonus is currently 60,000 points. When I signed up, it was 50,000, and I managed to get nearly $1,500 worth of plane tickets out of that by transferring to Aer Lingus.
If the $250 AF is too much, I’m also a fan of the Amex Green (referral), which is $150 AF with 3pt per dollar on travel/transit and dining with $100 CLEAR credit, that I temporarily got for the signup bonus.
Chase Sapphire Preferred (referral): $95 AF, 3pt per dollar on dining/online groceries, 3pt per dollar on streaming services, 2x on travel, $50 annual hotel credit. This is my secondary card for places domestically and abroad that don’t take Amex. It’s worth mentioning they also offer 5pt per dollar on travel booked through the Chase travel portal, but I generally advise booking directly through airlines/hotel when you can for when things go wrong.
This card currently offers a 60,000 point signup bonus. I signed up when it was 80,000, which through Pay Yourself Back on grocery/dining purchases (no longer available) gave me $1,000 value.
Citi Double Cash: $0 AF, 1% cashback when you spend + 1% cashback when you pay back (2% total). I don’t use this as much anymore, but it’s a good card for when you want simple straight cashback.
Capital One Quicksilver (referral): $0 AF, 1.5% cashback on everything. My backup straight cashback card, originally obtained for travel abroad since the Double Cash has a foreign transaction fee and the Quicksilver does not.
Capital One SavorOne (referral): $0 AF, 3% back on dining, entertainment, grocery stores. My backup international travel dining/entertainment card, for when Amex isn’t accepted. Got it when I didn’t have the Sapphire Preferred.
Amex vs Chase
If you decide to get into the rewards card game rather than the cashback game, Amex Membership Rewards and Chase Ultimate Rewards are arguably the two ‘big wig’ names in the game, the others in the game being Citi and, more recently, Capital One. Though there is some overlap between Amex and Chase transfer partners – airlines and hotels you can transfer points to – Amex has a broader stable at 21 total (18 airlines, 3 hotels) while Chase has 14 total (11 airlines, 3 hotels). It’s also important to note that there are some exclusive partners for each – for example, if you want to be able to transfer your points to Delta or Hilton, you should go with Amex, while if you want to be able to transfer to United or Hyatt, you should go with Chase. If you think you might want the option to use your points as cashback, Chase offers a better 1:1 ratio (1 point = $0.01 statement credit, 1000pt for $10) than Amex, which generally offers a 1:0.6 ratio (1 point = $0.006 statement credit, 1000pt for $6).
Before I go, some websites I read to geek out about this stuff. I regularly read Doctor of Credit, the rest are also credible sources that I check out on occasion. And of course, if you’re reading this you probably know me personally, so feel free to ping with followup questions!