Are you new to the credit card points game? Or maybe you’re looking to open another credit card but can’t decide which one? With so many options out there, choosing a credit card can be overwhelming. This article will share my #1 secret to maximizing credit card rewards so you can get the most value from your spending. I’ll show you how to pick a credit card in just a few minutes!
If you’re using cash or a debit card for most of your spending, here’s how to stop leaving money on the table and start earning rewards on your regular purchases. More money saved is more money you can spend on travel, after all!
Drum roll please…
My big secret is that finding the best value from credit card rewards starts with you. There is no one magic credit card that will benefit everyone in the same way. Start your credit card search by determining what kind of rewards are most valuable to you. Then, assess your spending habits to see which card(s) will earn those rewards. Remember that rewards can include cash back, airline miles, and various money-saving perks, like no foreign transaction fees.
Let’s get started!
How do I pick a credit card? Start by ranking your rewards
Credit cards come with a plethora of rewards programs, and they’re all a little different. First, determine what kind of rewards are most valuable for you out of these common themes:
- Cash back – looking to get a little extra cash from your everyday spending? Many cards offer 1-6% cash back on different categories, like gas stations, groceries, restaurants, department stores, or travel.
- Airline miles – do you fly frequently on the same airline? Most airlines offer credit card where the main reward (instead of cash back, for example) comes in the form of miles on that airline, which you can redeem for free flights
- Hotel stays – do you stay in hotels regularly? Large hotel chains (Marriott, Hilton, etc.) offer credit card that reward you with free hotel nights.
- Reward program points – do you travel frequently but not on one particular airline? Some credit cards present rewards as flexible “points” that you can redeem for travel through their “point marketplace.” Some programs, like Chase’s Ultimate Rewards, also allow you to shop with points on Amazon, or to redeem them for cash back.
Once you’ve narrowed down what you’re looking for, check out NerdWallet or The Points Guy for information on the types of cards out there. Information changes so often that I’m not even going to try keeping up with it 🙂 But, remember that “best” is subjective – what’s best for TPG, who travels hundreds of thousands of miles per year, might not be ideal for you.
So, which rewards are most valuable for you? Keep reading for more on maximizing credit card rewards based on your spending habits.
How do I maximize my credit card rewards? Assess your spending habits and preferences
None of the rewards I highlighted above mean anything if you wouldn’t use them!
Take inventory of your spending categories for which you would use a credit card. You probably have a good idea of what your major expenses are, but it doesn’t hurt to sign up with a site like Mint to see some analytics.
Why is this important? Most credit cards offer elevated rewards for certain spending categories. For instance, travel credit cards usually only give additional rewards (like 2 points per dollar instead of 1) on travel-related purchases. Cash back cards are likely to offer a different percentage cash back for department stores, gas stations, and the like.
When analyzing credit card options, I recommend actually calculating the rewards you would earn in a year to determine how valuable the card is for you. For example, one of my main expenses is buying groceries, so the Blue Cash card from American Express caught my attention. This card offers elevated cash back at grocery stores!
But here was my predicament: Amex offers a free version of the card that yields 3% cash back at grocery stores. They also offer a version with a $95 annual fee, but the cash back at grocery stores is 6%. Wow! All I had to do was figure out if increased cash back would cancel out the annual fee based on my spending habits.
Let’s say I spend about $500 per month on groceries (and in Florida, grocery stores sell wine so I probably spend more than that :P). $500 x 12 months = $6,000 per year. 6% cash back x $6,000 = $360. Even when subtracting the annual fee, I’m still earning at least $265 per year on my regular grocery store purchases! The free version of the card would only give me $180 back per year.
After using the card for about a year and a half, I earned enough points to get a free GoPro camera through the American Express marketplace! And because this card doesn’t offer exceptional cash back on other categories, I only use it for groceries.
When searching for credit cards, keep your eyes open for cards that fit well with your spending habits. Though it’s tempting, try not to spend more than you normally would, just because you’ve opened a new account. Now that we’ve talked about optimizing the spending you do already, keep reading to see how credit cards can actually help you save money!
How can spending money actually save me money? Prioritize your credit card perks
In today’s competitive credit card marketplace, rewards are only one factor when deciding on a new card. Credit card companies offer a slew of awesome perks to attract and retain your business.
- No foreign transaction fee – this is a big one for frequent international travelers! Some cards charge up to 3% just for making a transaction abroad. Save some money on your travels by opening a card with no foreign transaction fee.
- Shopping privileges – are you an avid online shopper? One perk to look for in a free Shoprunner membership, which gives you free 2-day shipping at tons of online retailers. Most American Express cards come with a Shoprunner membership that just needs to be activated upon receiving your card.
- Travel credit – want to get a statement credit based on your ordinary spending? Some higher-end credit cards are now offering annual statement credits for spending in a particular category. This credit can help mitigate the annual fee too. For example, the Chase Sapphire Reserve credits your first $300 in travel purchases per calendar year, which can include flights, hotels, Airbnb, rental cars, and Uber. Do you take a lot of Ubers? The American Express Platinum Card reimburses you for $200 in Uber rides annually.
Interested in the Chase Sapphire Reserve? Get a special 50,000 point referral offer here!
On the road a lot? Look for these specialty travel perks
- Waived checked bag fees and priority boarding. Most airline credit cards offer these perks, which can really add up if you travel regularly. The bag fees alone can save a ton of money. For example, if you fly four times per year with a checked bag, assuming the bag fee is $25 each way, an airline credit card could save you over $200 per year!
- Free TSA Precheck/Global Entry – another big one for frequent travelers. TSA Precheck costs $85 and Global Entry costs $100, both for a 5-year term. Some credit cards offer a statement credit for this expense. If you don’t already have TSA Precheck/Global Entry and are looking to opt in, this perk could be worthwhile. Same if you’re up for renewal.
- Lounge access – are you a frequent traveler who spends a lot of time in airports? Maybe lounge access is the perk for you! Lounges offer a quite refuge from the busy airline terminal, and they often include benefits like free wifi, food, drinks (many have free wine/beer/spirits), newspapers, nap rooms, and showers. Lounge access usually comes in one of two forms:
- An airline-specific lounge, like American Airlines’ Admirals’ Club or Delta SkyClub. If you travel a lot on one airline, or if you spend a lot of time in airports that have that type of club, a card that includes lounge membership can be worth it. For instance, Delta has nearly 250 SkyClubs (as of September 2017) and an individual SkyClub membership costs $495 annually.
- Priority Pass. Maybe you’re airline agnostic? Then, you may benefit more from Priority Pass than a specific airline club. Members can access over 1000 clubs worldwide. The Standard Priority Pass plan ordinarily costs $249 per year with 10 free visits included, but most credit cards that offer Priority Pass come with an unlimited number of visits.
While credit perks may be designed to get you to apply, they can also be a reason to hang on to a card for a long time. Pick the perks that work best for you, and you may end up saving a good amount of money!
What are some of your favorite credit cards? How did you pick them? Let me know in the comments, and I hope you can open a new card soon that works best for you!