# Credit Cards
!! Note !!: This article was first written in 2018. Use the logic in here, however I would not recommend the Uber Visa card in this document with the up coming change where all benefits are paid in Uber Cash as opposed to actual cash.
# Don't spend what you don't have
Credit cards are a double edged sword. They offer protections beyond what you can get with a debit card as well as benefits such as cash back or points for travel.
Treat your credit card like cash. If you don't have the money, don't spend it! They will offer all sorts of perks if you spend money. Don't spend money you didn't plan on spending anyways.
# Always use a credit card, NEVER debit
By US law, you are not responsible for fraudulent spending. Monitor your credit cards to keep an eye out for any fraudulent purchases on a regular basis. I check every 1-2 days.
Don't believe me? Listen to this talk by Frank William Abagnale, Jr. during his Google talk. He's the guy that the movie Catch Me If You Can (opens new window) is based on, and he's worked for the FBI for decades and specializes in fraud and cyber crime.
"But my I'm not responsible for fraudulent spending on my debit card, either." True, but a could big "but" items here:
- Debit pulls directly out of your checking account. You could get your checking account zero'd or have it drop to a point where other payments like your mortgage lead to an overdraft.
- Getting your money back can take weeks to months depending on circumstances. Since this money came directly out of your checking account, you may have to move money around to make your normal payments or even to buy groceries.
# Have a Consolidated View of spending
Use services like Mint (opens new window) and add all of your credit cards there so you can see what your spending looks like across accounts. Tools like Mint give you a way to see all transactions across all accounts as well as balances across accounts. Find a tool you like and trust, and use that as your way to audit accounts.
# Setup Account Alerts
If your credit card offers alerts, take advantage of that to get notified of large purchases (for example, any purchase over $250), or if your account balance goes over a given threshold fro a billing period. Card issuers often offer suspicious activity alerts as well, which you can subscribe to for text or email notification.
The second you see suspicious activity, immediately contact the credit card issuer to report a claim. Credit card issuers like Barclays, American Express, and others provide varying alerts to help you keep on top of your spending.
# Credit Score
Your credit score will dictate what cards you can get and in turn, what benefits you can recognize. The higher your credit score, the more options you will have for getting credit cards. See the Start Here section for more information on how to manage your credit score. The cards with the best rewards and benefits require an excellent credit score.
# What other benefits can credit cards offer?
This isn't a complete list, but some of the benefits you can get from credit cards include:
- No foreign transaction fees (there is commonly a ~3% fee for most cards)
- Rental car insurance if the car is rented with the card
- Cell phone insurance if the phone was purchased and the cell plan is on the card
# Cash back or Points?
When you start to acquire credit cards, you'll go in either the cash back direction or the points direction. Cash back provides a more immediate way to redeem your rewards through credit statements or deposits to your checking accounts. Points systems have more caveats, but if you plan the usage well, they can pay in a big way.
I personally use the cash back cards, but I do have friends who use points cards and have redeemed likely 10's of thousands of dollars in benefits from using points cards for their travel.
If you're looking for a good site to really dig into points and maximizing what you can get, check out sites like The Points Guy (opens new window). It's a great place to figure out which rewards programs are right for you, including airline, hotel, and general travel cards.
# There is no shortcut for doing your own homework
This may sound like a bummer, but no matter the type of rewards card you pursue, there is no shortcut for doing your own homework. I will generally go through sites like The Point Guy (opens new window) and nerdwallet (opens new window), and then do a lot of my own research. No site will cover all cards and options. Expect to spend a good amount of time comparing various cards and weighing benefits and don't be surprised if you select a card that wasn't listed as a "best" card on the sites you did the research on.
Why do I say do your own research? Most sites that talk about rewards and rate cash back credit cards don't list two of the three cards we use most, and their rewards far exceed what those sites recommend. Remember that some sites are paid to advertise for the banks offering cards and that can skew how cards are rated or displayed.
# Are cards that charge annual fees worth it?
It depends! You will need to do the math to figure out if it the fee and benefits are worth it. Don't shy away from a card just because there is a fee. Map out your spending and how you expect to use the card based on historical spending patterns. I have two cards that have an annual fee, however the benefits more than compensate for the fee.
Here's an example of how we measured the American Express Blue Cash Preferred to see if it was worth it compared to a no-fee card and another card with a fee.
| Grocery Spend/yr | $6,000 | |
|---|---|---|
| % back | Cash back | |
| AMEX Blue Cash Preferred | 6% | $360 |
| Citi Double Cash | 2% | $120 |
| Alliant Visa | 3% | $180 |
| Gas Spend/yr | $2,000 | |
|---|---|---|
| % back | Cash back | |
| AMEX Blue Cash Preferred | 3% | $60 |
| Citi Double Cash | 2% | $40 |
| Alliant Visa | 3% | $60 |
Add up the benefits for cash back of groceries and gas:
| Card | Cash back |
|---|---|
| AMEX Blue Cash Preferred | $420 |
| Citi Double Cash | $160 |
| Alliant Visa | $240 |
Review the annual fees:
| Card | Fee |
|---|---|
| AMEX Blue Cash Preferred | $95 |
| Citi Double Cash | $0 |
| Alliant Visa | $59 |
Net Cash Back (Cash back minus annual fee):
| Card | Net Cash back |
|---|---|
| AMEX Blue Cash Preferred | $325 |
| Citi Double Cash | $160 |
| Alliant Visa | $181 |
As you can see, for the Gas and grocery categories, even with the annual fee, we get about $165 more back per year, than a no-fee 2% cash back card. So in this case, it makes sense for us to have the annual fee card.
I'm going to break it to you, you're going to have to do a lot of math. The amount of stuff we've put into Excel to calculate benefits and evaluate options have been staggering. A lot of sites share their calculators for free through Google Docs or downloadable Excel files.
# What cash back cards do you carry?
There are only three cards that I actively use now. I have more than three cash back cards since some of these cards are newer.
Disclaimer: I'm putting in links where that would give me a reward, if it's offered. All of these cards require a good credit score, if you have poor credit, get your score up before applying for these cards.
- American Express Blue Cash Preferred (opens new window): This is our gas and groceries card. 6% back on groceries up to $6,000 spent in groceries per year, and 3% back on gas. Annual fee of $95. Disclaimer: The link I'm providing would give me a referral bonus if you sign up via the link. I would appreciate it if you use the link if you sign up!
- Uber Visa Signature (opens new window): This is our food and travel card. 4% cash back on restaurants and bars, 3% cash back on travel including hotels, airfare, and home rental services like Airbnb and VRBO. No foreign transaction fees. No annual fee. !! Note !! - No longer recommend this card, benefits listed are pre-November 1, 2019.
- Alliant Visa Signature (opens new window): 3% cash back on everything the first year, 2.5% cash back after. No foreign transaction fees. No annual the first year, fee of $99 per year each year following.
These cards and fees work for how my family use the cards. Do your own math to figure out which cards make sense for you, especially if fees are involved.
Each of these cards has additional benefits. I've only covered the high level rewards that we use the most. I have gotten hundreds more back on the American Express through their offers. If you have an AMEX, check out their offers from time to time. Combining the offers with a sale can result in a ton of cash back, sometimes north of 20% on the purchase price.
# How do you know which card to use?
You will need to do homework first to understand where you'll have the biggest benefit. We keep a Google Doc with the spending categories and which card to use in order of preference. This way, if one card is declined, we can reference it to see what else we could use.
There are also apps, like TPG To Go (opens new window), which you can load your cards into. There is a feature called "Pay" that will look for venues near you and list which card will provide the best reward for your purchase. If you tie it into your actual accounts, it will identify areas you missed out on maximizing your rewards.
If you want to get even simpler, I have a friend who uses a labeling machine to put notes on his families credit cards for what to use the card for. This is useful for rotating category cards like some of the Discover cards.