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Here at After School Finance, we are big believers in eliminating harmful types of debt. But we are also believers in leveraging financial products such as credit cards to work towards your financial goals. Do you pay your credit card bills in full every month? Are you wondering what the best strategies are for earning credit card points and maximizing rewards for your purchases? This is the guide for YOU.
Do You Need Credit Cards?
Credit cards carry exorbitant interest rates on the balance you carry over from month to month. Let us start with a simple recommendation: if you cannot or may not pay your balance in full every month, you should not be using credit cards for your purchases. No amount of credit card rewards can make up for the exorbitant interest payments associated with carrying a balance. Should you have existing debt and are looking for ways out of debt, check out our guide: How to Get Out of Debt.
If you have existing credit card debt (or other high-interest-rate debt), steer clear of adding to your pile because of the temptation associated with credit cards.
If, however, you can responsibly manage your credit cards and pay off the balance every month, credit cards are a great tool in the toolbelt for picking up a little extra buying power. The offered rewards can put money back in your pocket, pay for your next trip, or even help you save on everyday purchases like gas and groceries.
Applying for a Credit Card
One question we get is whether opening a new credit card hurts your credit score. The simple answer is yes, but the penalty is typically fairly small. In the long-run, having more accounts that get paid consistently on-time can help you, so it’s a short-term consideration. That said, if you’re planning to take out any kind of loan soon (house, car, etc.), do not open a credit card until that transaction closes.
Another consideration is what you need to apply for a credit card. Usually the application process is pretty simple, and requires providing some basic information like your social security number, income, etc.
Having a strong credit history makes it more likely that you will be approved for the card you’re applying for and with a higher credit limit. If you have a higher credit score, you are more likely to be approved for the top tier of cards. If you are looking to boost your credit score, check out our simple tips!
Lastly, opening and closing credit cards repeatedly will hurt your credit, so we suggest only opening cards that you plan to carry in your wallet long-term.
What are the Different Types of Credit Cards and What Rewards Do They Offer?
The best credit cards offer many perks, with the right card for you being based on your use case. However, when your goal is earning credit card points, you’ll need to find cards that align with the ways you spend money. The most common credit cards broadly fall into the following categories:
Cash Back Cards
Cashback credit cards essentially give you a discount on every purchase every day, with you receiving a statement credit or cash back at the end of each billing period. These types of cards are great for purchases for which you don’t have a specialized credit card (insurance bills, car maintenance, etc.).
The best cashback credit cards today offer 1.5% – 2.0% back. Last year my car insurance bill was around $1,700. Just by putting my insurance on a cashback card, I earned over $25 back! Cashback credit cards are a nice consolation prize for the money you’re spending on everyday purchases. However, exercise caution not to spend more just because you have a credit card in your wallet and are earning rewards. If you find you’re tempted to do so, it may be better to stick with a debit card or cash where possible.
Travel Credit Cards
The next broad category of cards is travel credit cards. These cards have high earning rates on things like airfare, hotels, dining, and even purchases you might not expect to qualify as travel, such as Uber and Lyft.
If you are a frequent traveler for personal or business reasons (assuming you can use your personal card for business), you need to have a travel credit card in your wallet.
In addition to earning fantastic rewards on these purchases, they often offer some nice additional perks for road warriors, such as no foreign transaction fees, Global Entry/TSA Pre-Check fee credit, airport lounge access, etc.
Retail Credit Cards
Retail credit cards are offered by chain retail stores like Best Buy, Nordstrom, Macy’s, etc. Generally, these cards have mediocre perks and unfavorable terms if you do happen to carry a balance over.
However, there is one credit card in my wallet that falls in the retail credit card category that I love: The Amazon Prime Rewards Visa Signature Card. This card carries no annual fee and 5% back at both Amazon and Whole Foods. As a shameless shopper at both of these places, this card is a no-brainer (not to mention all the other great perks it has on offer).
Airline Credit Cards
Airline credit cards are co-branded cards that offer perks on the airline of your choice. Unless you are an extreme loyalist to one airline, these cards often don’t make as much sense, as a generic travel card allows you to earn benefits on several carriers.
Typical perks include additional mileage earning, lounge access, priority boarding, and free checked bags.
Hotel Credit Cards
Hotel credit cards, like airline credit cards, are co-branded cards that offer perks at the hotel chain of your choosing. Again, justifying these cards requires significant loyalty to a particular hotel brand.
Which Types of Credit Cards Should You Have?
In deciding what credit cards should be in your wallet, the answer will depend on your spending habits and your most common purchasing categories.
However, a no-annual-fee cash back card should be in every person’s wallet (assuming you meet the criteria I established above about paying your bill in full). Countless purchases make these cards worthwhile. Earning cash back on every purchase every day is an obvious choice. The Chase Freedom Unlimited is my personal favorite (for reasons I’ll describe below).
If you’re a frequent traveler or eat out a lot, get a travel card. The perks of these cards often justify the annual fee, and the list of perks is longer than most other types of cards. Again, unless you’re an extreme loyalist to a particular airline or hotel brand, get a generic travel card like the Chase Sapphire Preferred. They are also often tied to dining perks, allowing you to earn on restaurant purchases.
Get a card to maximize earnings on other types of expenses. As an example, the Chase Freedom offers rotating categories throughout the year on purchases like gas, groceries, and department stores. Getting 5% back on these purchases is awesome because it’s money you’re spending anyway. Another example is the Amazon Prime Rewards Card which offers 2% back on gas and drugstores year-round.
While the aforementioned categories of cards aren’t the only ones to think about, they’re a strong first step towards earning rewards.
Three Cards for Every Wallet
While the right credit card formula depends on your circumstances, here are a couple of suggestions:
- If you want to keep things simple, find a good credit card option with your existing bank. This will help ensure that your bill gets paid every month.
- Try to keep all of your credit cards consolidated amongst 1-2 banks. Again, the more you can simplify your finances, the less likely it is that you may miss a payment.
- If you decide to pursue a credit card with an annual fee, make sure that the benefits you’re getting from that card significantly outweigh the annual cost.
- Be sure to read the terms and conditions associated with a card closely, and know that they may change over time, including a jump in the interest rate after an introductory period.
Without further ado, here are the 3 cards that we think belong in most wallets, particularly if you’re an existing Chase customer:
Cash Back Credit Card – Chase Freedom Unlimited Credit Card
The Chase Freedom Unlimited is our favorite cash back card, and for good reason. The card earns 1.5% back on every purchase every day, has a $200 signup bonus currently, and no annual fee.
While other cashback cards earn slightly more, we are big fans of the different ways you can use Chase Ultimate Rewards Points (cash back, travel, etc.). Additionally, because Chase offers a host of so many great cards, we like having our cashback card with them.
Travel Credit Card – Chase Sapphire Preferred/Chase Sapphire Reserve
Here at After School Finance, we travel a lot. Perhaps we are a little biased, but we LOVE LOVE LOVE travel credit cards. The Sapphire Preferred is the best travel card for less frequent travelers, but stepping up to the Sapphire Reserve can make a lot of sense if you spend a lot of time on the road.
Additionally, these cards offer great perks on dining, so if you find yourself eating out a bunch, they’re worth considering.
Sample benefits of these cards include a massive signup bonus worth $750 – $900 (if redeemed for travel), 2-3% back on travel and dining lounge access, travel credits (Reserve only), etc. The Sapphire Reserve is the card in our wallet that gets more use than any other.
Simply put, we think the Chase Sapphire Reserve card is the best card on earth.
“Utility” Credit Card – Chase Freedom or Amazon Prime Rewards Card
Lastly, to pick a card with great “relief pitcher” benefits, we recommend the Chase Freedom card or the Amazon Prime Rewards card. Both cards carry no annual fee and offer solid perks for varying categories like gas, groceries, etc.
The Chase Freedom offers rotating categories with 5% back throughout the year, while the Amazon Prime Rewards card offers 5% back at Amazon and Whole Foods year-round, plus 2% back on gas and drugstore purchases.
Earning Credit Card Points in the Real World
When it comes down to using these cards in the real world, the key is making sure you use the card that maximizes perks for a given purchase.
Buying an airline ticket? Use your travel credit card. Buying groceries? Is that a 5% back category this quarter? If so, use that card. Insurance bill due? Put it on the cashback card. Hopping in an Uber? Travel credit card.
These sorts of decisions require some thinking in the beginning, but once you get the hang of it, earning credit card points couldn’t be simpler.
Earning Credit Card Points: Summary
To get started earning credit card points, take these simple steps:
- Make sure you can and will pay your bills in full every month.
- Decide what credit card types best fit your spending habits.
- Check out the credit cards your current bank offers to streamline your finances or pick 1-2 banks to have credit card accounts with. If you’re looking to start simple, shoot for a cashback card, a travel card, and a category maximizer “relief pitcher.”
Are there any types of card categories we missed? What are your favorite cards? Let us know in the comments below!