Credit Cards

Wouldn’t you love to get paid for doing all your everyday tasks? Take a shower in the morning…$3, brush your teeth…$2, take the garbage to the curb…$4. Alright, so my analogies aren’t the best (fair warning -- I love analogies), but hopefully you get the picture. But this type of opportunity is available to almost everyone through the use of no annual fee, cash back reward credit cards.

I use credit cards for two reasons 1) they are super convenient & 2) I get paid to do so. Credit cards can be dangerous if used improperly, so if you don’t trust yourself to pay of your balance IN FULL every month, than read no further. For those that can handle the responsibility, I highly recommend doing the following:

1) Figure out how much of your spending can be charged on a credit card every month
2) If possible, categorize your spending into broad buckets (e.g. gas, groceries, utilities)
3) Visit one of the many credit card comparison sites on the web to find a list of the best cash back cards.

So how do I know which card is the best? The answer depends on how much you spend. The only way to know for sure is to “do the math” by figuring out how much you spend per category (since some credit cards pay higher bonuses for certain things like gas and groceries) and then multiply your spending by the reward structure.

If you are a big spender, look for a card that does not cap the rewards paid per year. These cards typically have a tiered reward structure so it may take a couple months worth of spending to break into the juicy top tier rewards. Personally, I like Blue Cash from American Express because they offer 5% cash back on all supermarket, gas station, and drug store purchases along with 1.5% back on all other purchases once you break into the top tier (spending over $6,500 on the card annually). With rising gas and food costs, this these types of rewards are money (literally)! I always carry a backup card (usually a Visa or MasterCard) as American Express isn’t “everywhere you want to be.” This is a bit of a hassle, but worth it for the extra dough in my opinion.

If your not a big spender (less than $1,000 per month), it may take you too long to work up to the top tier, so a simple non-tiered reward structure would be better. One of my favorite (and my backup card) is the Chase Freedom card. It offers 3% back on your top 3 everyday spending categories and 1% back on all your other purchases. Your top 3 categories may not be gas, groceries, and drugstores, so you get the added flexibility of juicier rewards on whatever you spend the most.

Always remember to read the fine print as important information like reward caps, tiers, and exclusions are hidden there. For example, the maximum bonus reward on the Chase Card is $12 per month. So if you go hog wild and spend $2000 on a vacation one month, you won’t get the full 3% back on the entire purchase. If you don’t like reading the fine print or get confused, just call up the credit card company and the nice representative will be sure to read you a canned response of their computer screen ;).

Finally, one last point before we shut her down for the day, cash is king. There is still a contingent of folks who willingly (I know…it’s hard to imagine) sign up for mileage plus cards and PAY the credit card company for the privileged to do so. I’m not sure how many of you have actually tried to book an airline ticket using miles, but gone are the days of the 25,000 mile ticket. Okay, sure, if you want to fly at 6 am from Dallas to Chicago on a Wednesday, that route might be available (but I’m not promising anything). If you want to fly to non-hub cities or during regular waking hours, be prepared to fork over 50,000 miles for your troubles. Assuming the average ticket cost $500 (high in my estimate, but work with me here), you miles are worth exactly 1 cent per mile. That doesn’t even factor in the annual fee on the credit card or any booking fees or taxes the airline might try to nickel and dime you for. So the in the end, you are paying a credit card company to give you (in essence) 1 cent for every dollar you spend when you could be getting this or better for FREE with the cash rewards card. So my advice is that you fire the mileage plus card, start collecting cash, and use Kayak and the money you’ve earned to book your next flight.

Frugal Regards,
Franco