All About Credit Cards
This post has taken me quite a while to write. It's a conglomeration of what I know about credit cards, which ones might be right for you, and the cards I've signed up for over the years.
**Please remember that credit cards aren't for everyone and you shouldn't sign up for a card if you are currently struggling with debt or might have trouble paying your balance in full each month. If you're wondering what the interest rate on a card may be, then you shouldn't be signing up for the card in the first place. Never carry a balance over and always pay your bill in full. If you don't, you're simply giving your money away to the credit card companies and all points/miles accumulation won't really be free in the end.
There are tons of other ways to earn points/miles for free travel, but credit card's are the fastest and most lucrative way to do so. Let's start with some basics and the different types of cards out there.
Retail Credit Cards
In the land of Travel Hacking, you won't hear anything about retail cards. Generally, these cards aren't a good investment, unless you do in fact shop at that store frequently enough to justify the rewards you're getting. The first credit card I ever signed up for was a Target Card, and I still use it today. The rewards have changed a bit over the years, but the current "5% off every purchase" is still worth it to me, especially when I'm buying groceries, home goods, office supplies, clothes and more. I've had a couple other retail cards over the years, Kohls and Macy's, that I thought I needed when Blake and I were getting married. But the benefits aren't really worth it in the end. It was nice to get the initial discount on my first purchase, but I don't shop at those stores enough. I haven't used those cards in over 2 years.
Cash Back Credit Cards
These cards are a great way to earn rewards, even if you're not interested in travel. You get some sort of cash back for using the card. Many cards don't have an annual fee and even offer a sign up bonus after hitting a minimum spend.
Blake's first credit card was the Chase Freedom card. It has no annual fee and you get 1% back on all purchases, plus 5% back on certain categories each month. It has a $150 sign up bonus after spending $500 in the first 3 months. Think about how much money you spend each month and give yourself 1-5% of that back! And you can use it on anything!
For us, we don't use this card as much as we used to. 1% isn't that great in the world of travel hacking. We mainly use it for the bonus categories to take advantage of the 5%. What's a bonus category? For example, right now the card offers 5 % back at gas stations and local commuter transport. If we were driving and filling up the tank, we would use this card. If we were taking public transit, we would use this card.
We also stopped using the cash back feature on this card. WHY?! Because we'd rather take those points and use them towards travel instead of convert them to cash! You get much more value from the points if you use them this way, rather than use them as cash. This is a bit tricky with the Freedom Card. You have to have another qualifying Chase Card to be able to transfer the points and use them towards travel. We have the Chase Sapphire Preferred Card, as well, so we transfer our Freedom points to the Sapphire Card and then we're able to transfer those points into our United Frequent Flier account. This is confusing, I know. Keep reading.
General Rewards Cards
These cards are also a great option if you're not necessarily interested in travel rewards. They give you a variety of ways to redeem your accumulated points. You may be able to use your points towards products featured on their website, gift cards, cash back, or travel purchases such as hotel rooms, plane tickets, etc. Examples of these cards include the Capital One Venture card, the Barclay Arrival Plus card, and the Discover it Card.
The second card I ever signed up for was a Capital One card. I was just out of college and I didn't know too much about credit cards. It was great to start out with because it didn't have an annual fee and it had a variety of ways that I could use my points. It took forever, but eventually I had enough points accumulated for a plane ticket. I quit using this card as soon as I learned about Travel Hacking back in 2013. I learned that there are much better cards out there if you want to get more miles, more quickly. You will pay an annual fee for these types of cards, but it can be worth it.
Airline Credit Cards
These are great for the sign up bonus and some other perks if you fly with a certain airline all the time. I signed up for the United Card a few years ago but ended up cancelling it after the second year. You get a great sign up bonus, free checked baggage on United flights, and 2 free passes to their airport lounge each year. I ended up cancelling the card because the annual fee didn't add up for me. I don't fly United enough to make use of the benefits because I mostly use my United miles on partner airlines. (See my previous post on airline alliance for more information).
I currently have the American Airlines card but I will be cancelling it before I have to pay the annual fee in June. I signed up for it to get the bonus points (50,000) but the annual fee isn't worth it to me since I don't fly American enough.
Hotel Credit Cards
I just started getting into these cards and it's quite exciting! I have the IHG card, the Marriott card, and the SPG Card so far. I'm not an expert in these types of cards or hotel travel hacking in general, but here's why I decided to get these 3 cards in particular.
The IHG card is the Intercontinental Hotels Group and includes chains such as Intercontinental, Holiday Inn and Crowne Plaza. When I signed up for the card, they had a bonus of 80,000 points and the annual fee was free the first year ($45 after that). Those 80,000 points I got paid for our hotel in San Francisco for Blake's 30th birthday! You also get a free night stay each year. We used our free night and some points for our stay in Delhi, India last month. Right now the bonus is 60,000 points and the annual fee is $49 after the first year. When using the card, you get 5 point for every $1 you spend at IHG hotels, 2 points at gas stations, grocery stores, and restaurants, and 1 point for every other purchase. I don't use this card on a daily basis but I'm keeping it open and paying the annual fee. Why? Because we get a free night each year we keep it open! So that $45 annual fee pays for a one night stay and we're treated as kings when we do stay at an IHG hotel. Because we're members and have the card, we've gotten free drinks, free fruit baskets, free cookies, upgraded rooms, late checkout, and even discounted meals. It's a lot of fun!
The Marriott card- I haven't used my Marriott points yet, but I'm thinking we'll be using them in Japan. I got 80,000 bonus points when I signed up for this card and I also get 1 free night a year. The benefits are similar to the IHG card but the annual fee is $99 a year. Do a quick search of Marriott hotels and you will see that they cost a lot more than $99 a night! I'm not sure if I'll keep this card open going forward (we don't usually stay in fancy hotels), but it's fun for now!
The SPG or Starwood Preferred Guest Card includes brands such as Sheraton, Westin, and W hotels. They also just joined with Marriott so I believe you can use these points towards Marriott now, as well. You get a 25,000 point sign up bonus, 5x points for money spent at Starwood properties, 1 point on everything else, no blackout dates, and a free account with Boingo (the internet provider). I actually didn't sign up for this card for the hotel points. I signed up for it because it partners with over 30 airlines and you can transfer the points to one of their partners! The best part, they even give you a 5,000 point bonus if you transfer at least 20,000 points. I haven't used these points yet, but I'm planning to transfer them to American Airlines. I have over 40,000 points so when I transfer them, I'll actually come out with 50,000 American Airlines miles. The annual fee is $95 after the first year. I'm not sure how long I'll keep this card open but I've been using it on purchases that don't include travel and dining.
Flexible Travel Credit Cards
These are cards that give you points specifically geared towards travel, but you choose how and where you want to spend the points. Unlike hotel and airline cards that require you spend your points on their property or airline, you have more flexibility to choose how you spend the points. Many of these cards have their own travel portal where you can book with any company you like or they may have various travel partners where you can transfer your points.
Technically, the SPG card that I mentioned above is one of these cards. You don't have to use your points at Starwood hotels. You can transfer them to one of their partner airlines, as well. Many of the Chase Cards offer this feature, as well. Read on to learn about my favorite credit card and arguably the BEST travel card out there.
The Best Travel Credit Card
Obviously this is debatable and depends on your personal opinion, but if you start doing some research, you will hear a lot about the Chase Sapphire Preferred Card. When I first started my research in 2013, it was one of the best cards and it's still arguably the best card today. Here's a snapshot of the card.
-50,000 Bonus points after you spend $4,000 in the first 3 months
-5,000 bonus points after you add an authorized user to the account and they make a purchase within the first 3 months
-$0 Annual Fee the first year, then $95 after that
-2x points on travel and dining (airfare, hotels, taxi's, restaurants, etc.)
-1 point on all other purchases
-$0 Foreign Transaction Fees
-You can transfer your points to participating travel programs
Why Is This the Best Card?
1. Well first of all, the sign up bonus is one of the best out there! You get 50,000 points (after meeting the minimum spend) and another 5,000 when you add an authorized user and they make a purchase. This is a no-brainer if you have a significant other that you share expenses with.
2. You get 2x the points on travel and dining (and 1 point on other purchases). There are other cards out there that offer similar spending rewards on travel and dining, but this card has the largest travel category out there. i.e. Taxis/Uber, rental cars, tolls, public transit, parking garages, airlines, trains, cruises, travel agencies, hotels, campgrounds, etc.
3. Being able to transfer your points to participating travel programs gives your miles more value! Chase has a travel portal where you can book a flight directly through them, but more often than not, it will take more of your precious points to book the ticket. If you transfer those points to one of their partner's, you will use less points to book the flight. United Airlines is one of their partners, so I transfer my Chase points into my United frequent flyer account.
Remember how I said that I stopped using my Capital One Card? One of the main reasons is because you have to book tickets through their travel portal and it takes a lot more points to book through them than it would through an airline. For example, when I was booking flights to Cape Town, the ticket price was about $1200 round trip. This would equate to 120,000 Capital One points. When I booked the ticket through United using my miles, it was only 60,000 miles! (plus the taxes which you have to pay in cash... I believe the taxes were around $100). In general, you get a lot more value from your points/miles when you use an airlines program to book. The Chase credit cards are so great because you can transfer your points to a partner credit card or travel program! Remember the Chase Freedom Card I mentioned before? I transfer those points to my Sapphire Card and then I transfer those points to United.
4. No foreign transaction fees! I think most cards offer this benefit today, but you should check before using any credit card abroad! It can cost you a lot of money if you're using a card that charges you every time you use it in another country.
5. No annual fee the first year! This gives you the flexibility to get the sign up bonus and then cancel or downgrade the card before paying the annual fee for the second year.
Why Would an Annual Fee Be Worth It?
I used to scoff at cards with an annual fee. And rightfully so! You need to make sure it's worth your while to pay the annual fee.
With the Chase Sapphire card in particular, it's worth keeping the card after the first year and paying the annual fee if you spend more than $5,000 a year on travel/dining. You would be getting enough points for at least $100 in travel. If you spend more than $10,000 on other purchases (non travel), you're still getting at least $100 worth of free travel. The card also offers some insurance on things such as rental coverage, trip delays, lost baggage, and more. It's worth evaluating all the benefits a card gives you to see if it outweighs the annual fee.
For me, it makes sense to keep paying the fee. Living in Chicago, I pay $100 a month for unlimited public transportation (or $1200 a year). Plus, let's say another $50 on cabs ($600 a year). We also go out to eat quite a bit. Let's say Blake and I spend $80/week or $4160 a year at restaurants. That's $5,960 a year on travel and dining. And this doesn't include trips we take when we're spending money on hotels, airfare, etc. The travel and dining category is broad and includes a lot.
If you decide the annual fee isn't worth it to you, remember that it's waived the first year. If you don't want to pay the fee the second year, you have the option to call the card issuer and see if they will waive the fee again. Tell them you're considering cancelling the card. If they don't waive the fee, you can simply close your account before the fee is due. You got the sign up bonus, and that's the biggest perk.
**Chase just introduced the Chase Sapphire Reserve card in August and I practically ran to the bank the day it was released. This card has an annual fee of $450 and it's not waived the first year. The sign up bonus (100,000 miles!), 3x points on travel and dining, a $300 travel credit, and the other perks made it worth it. Blake and I are currently using this card 90% of the time but only time will tell if this card is worth keeping long-term. I'll cover this card in more detail in a later post.
When to Keep or Cancel a Credit Card
Just because you're not using a card, doesn't mean you should cancel it. I still have my Kohls, Macy's and Capital One cards open, and I always will. None of these cards have an annual fee and they are all paid off, so there's no need to cancel. Cancelling these cards might actually hurt my credit score and shorten my credit history. I've had these cards open since my early 20's, proving that I am a responsible consumer. By closing these accounts, this positive credit data will eventually be removed from my credit report.
Additionally, if I cancelled these cards, my available credit would decrease and my 'credit utilization ratio' would worsen. Available credit is the amount of credit available to you. The ratio is the amount of credit you're using. Let's say my available credit on all my cards is $50,000 and currently I have a balance of $5,000 on these cards. I'm using 10% of my available credit. If my Capital One card has a credit limit of $10,000 and I cancelled that card, my available credit would go down to $40,000 and my utilization would increase to 12.5%. It now looks like I'm using more credit than I was before. Lender's love to look at this number.
So when should I cancel a credit card? When the card is costing you more money than necessary. This might include an annual fee or high interest rates. If you're trying to get out of credit card debt, then paying off your debt and cancelling your card might be the best idea for you.
For more information, you can refer to this article.
Ways to Hit a Minimum Spend Requirement
Some of the most valuable travel cards require a high minimum spend in order to get the big points bonus. For the Chase Sapphire Card, the bonus is 50,000 points! This translates to 2 round trip plane tickets in the US. In order to get this bonus, you have to spend $4,000 on the card in the first 3 months. This can be difficult, I know. Here are some tips to help you get there.
1. Pay for EVERYTHING you can with your card! i.e. Daily expenses like food, drinks, groceries, gas, movie tickets, etc. Monthly expenses like utilities, cell phone bills, subscriptions etc. Offer to pick up the check at lunch with your co-workers and have them pay you back.
2. Add your significant other to your account and have them use that card for all of their purchases too.
3. Buy gift cards to places where you already spend money and you know you will use them in the future. (Groceries, Gas, Starbucks, Amazon...)
4. Pay some bills in advance if you can. Do you pay your car insurance monthly? Why not pay for 6 months in advance? This may even get you a discount on your insurance if you pay more in advance!
5. Sign up for the card before you're going to make a big purchase. Have a big home repair you've been meaning to take care of? An upcoming vacation? A new computer or tv? You will hit the minimum spend much easier if you use your new card for a big purchase.
6. Give money to charity. If you give money to certain organizations every year, why wait?
7. If all else fails, you can pay your rent or mortgage with your card. Only do this if you have to, as you will be charged a fee, usually about 3%. If your rent is $1000, that's a $30 fee. Does your landlord only take a check? No problem! There are many services providers out there that can help you with this. Just google it.
I know that $4,000 is a lot of money, but you have 3 months to do it! And, if you strategically sign up for the card before making a big purchase or have your partner use the card as well, it won't feel like such a lofty amount.
If you have any questions, comments or want to chat in general about credit cards or travel hacking, feel free to reach out! If there's something I don't know, we can research it together. I'm still learning but I love talking about all this stuff and helping others along the way too. :)
Happy New Year and Happy Travel Hacking!