Friday, October 3, 2014

Have a Credit Card STRATEGY!

What do YOU get for buying something on your credit card?  Do you have a game plan?  Are you sure that you are maximizing the value (measured in dollars and/or enjoyment!) that you are getting for using credit cards?  Are you buying everything you possibly can buy on a credit card, to make sure you're maximizing the "free money" rewards they offer?  Intrigued by the questions???  If so, read on ...

As always, I begin my discussion by referring you to my overall thoughts on "getting the best deal" and some credit card "warnings."

Here are my keys to having the best possible credit card strategy:

A) Buy everything you possible can on credit cards!  If you are the type of person who can handle having and using credit cards responsibly (see warnings above), then you might as well (should!!) charge everything possible to a rewards credit card - as opposed to ever using cash, checks, auto-withdrawal (e-payments from your checking account), or debit cards.  Now I say "everything possible" because there are some items that are difficult (or impossible) or expensive to pay for using a credit card.  For example, mortgages, car payments, and utilities usually either will not accept payment via credit card or change large percentage fees (either directly or via a third-party service) for doing so.  There are possible ways to potentially make it work (have it be "worth it" - even after fees), but that's a topic for another day.  For now, suffice to say that you should be paying EVERYTHING that is reasonably easy/possible (no fees) to be paid for via credit card.  Why pass up on any opportunity to earn credit card rewards??? ...

B) Make sure you're getting AT LEAST 2% in "value" back on EVERYTHING you buy via credit card!  I am aware of at least 2 different credit cards that will effectively pay you back at least 2% in statement credits (as good as cash) on everything you purchase with them.  (More details below, in item "C," and in future posts on this blog.)  How much money do you spend in a year on good/services/bills that you COULD be paying on a credit card?  If you answered $20,000 (just to pick a number), then 2% equates to $400.  Not a huge number, but would you pass up on $400 if someone offered it to you?!?  BEWARE rewards credit cards that don't give you at least 2% in value.  There are a LOT of them out there.  For example, if you do the math on the "points" that a lot of retailers give you (usually per dollar that you spend) from their loyalty credit cards, or the "miles" earned on airline-affiliated cards, you will find that it is common for those miles to have a value of 0.5 to 2 cents.  Said another way, you are getting 0.5% to 2% of value, and it is usually on the low- to mid-end of that range in my experience.  (I'll post some examples at a later date.  But I will note that the exception to the rule is using those retail- or airline-branded loyalty cards when you are buying directly from those stores/airlines, as they then often give you extra points/miles that take up the value of the rewards on those purchases to well over 2%.)  And the WORST thing is that you are LOCKED in to using those points or miles in one certain way (at that retailer or airline - other than some who allow you to transfer the points/miles to other rewards programs).  Whereas if you have the 2%+ back (in statement credits = cash) credit cards I have referenced, then you have ULTIMATE FLEXIBILITY (cash is cash!!).  So what card(s) should you use??? ...

C) Consider getting specialized on which credit cards to use for various types of purchases.  My starting point for a go-to/everyday credit card is one of two cards I'm aware of that pay you back at least 2% (one a bit more) in the form of statement credits (cash!).  If you do nothing else, you would be well-served to have at least one of these cards.  But can you do better than 2% with more specialized cards.  As I mentioned in "B" (above), some airline- or retail-branded credit cards will pay you 2x or 3x (or more) on purchases when you buy specifically from that airline or store.  If that's the case, then you could be getting well in excess of 2% in value for the rewards on those purchases.  Furthermore, there are cards that will pay you 3%, 4%, 5% or even 6% (!!!) back on purchases in one or more specific categories - such as groceries, gasoline, restaurants, and travel ... or even categories as specific as office supply stores or telecom/TV bills.  So now, if you start using some of these cards (and have a clearly defined PLAN of when and where to use which cards), your blended credit card rewards value might go up to 3%+ (or $600+ per year on a hypothetical $20k in spending!!).  I plan to write more soon to give you details on (and links to) specific cards that I have found to be the best in terms of generating rewards value in various spending categories.  (But, for now, I'll tell you that the Capital One Venture card pays 2% back on everything with a $59 annual fee, while the Barclays Arrival Plus card pays effectively 2.2% back on everything with an $89 annual fee.)

C, part ii) A few quick notes to follow item "C" (above).  Any additional cards that you get (beyond one of the two 2%+ cards) need to be measured against the value of simply using one of the 2%+ cards instead.  For example, say you find another card that pays you 3% back on groceries and has a $75 annual fee.  The question then is not whether it's worth $75 (per year) to get 3% back on groceries (that's probably a no-brainer), but whether or not it's worth $75 to get an extra 1% back on groceries - beyond the 2% you're already getting on your current credit card (so you'd have to spend over $7500 per year on groceries to make it worth it - so good thing I have a card to tell you about that earns 6% back on groceries!!).  I hope it also goes without saying that you need to be comfortable with the number of credit cards you decide to apply for and carry (also a topic for another day).

D) Keep good track (records) of all of your credit cards. Especially if you start to use more than a few credit cards, you will want to keep very good records of them for at least two important reasons.  The first is to make sure that you ALWAYS make your monthly payments (of the entire statement balance) on-time!  I do this by grouping my cards into two (have considered doing three) buckets that I pay all at the same time (more efficient use of my time).  I tend to go to the credit card websites and set up future (near future) payments for the day (or the day before) each of the payments are due (to be drawn electronically from my checking account).  I set multiple/automated/recurring calendar reminders for myself for both of the buckets of payments, so that I am sure to never forget!  If, by chance, you pay a card late by a day or two (don't let it happen very often!!), don't hesitate to call the bank and ask them to waive the fee (and interest charges).  If you have been a good/consistent customer, they will usually do so (at least once every year or two).  The second reason for keeping good records of each of your cards is to be aware and plan for the annual occurrence of annual fees (on cards that have annual fees).  I'll get more into this later, but each year you should consider whether or not you want to keep each card going forward - and, if not, be sure to cancel your card before the annual fee hits (although some cards will allow you to retroactively cancel and get out of the fee, or get it reduced on a pro-rata basis).  Maybe in the future I'll also share a spreadsheet template for tracking cards that I use (feel free to ask me for it).

E) Also remember shopping portals and the value of credit card sign-up bonuses!  These are really topics for another post, not specifically about the day-to-day strategy for using credit cards.  But I feel like it's an important reminder that besides maximizing your rewards for purchasing with credit cards, there are at least two other key items for saving big money and getting value from rewards credit cards.  First, don't forget to use shopping portals to get additional cash-back or rewards for online shopping as described HERE.  Second, another huge value in having credit cards (especially multiple credit cards) is the value that the credit card companies give you in sign-up bonuses (and sometimes annual bonuses for staying with them).  I will discuss credit card sign-up bonuses at a later date.

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