At this point in the blog, we’ve highlighted all of essentials you need to achieve financial independence. The vitamins of financial fitness. The cores of your money’s CPU (Joe, am I learning something?!). Namely, playing good offense and good defense and optimizing your taxes with retirement accounts.
Mastering these elements will make you rich, and give you the freedom to live your life the way you want to. Credit cards will NOT make you rich, but when used wisely they can give you a nice boost along your way. Today I will describe two main approaches to credit cards. Next week we’ll continue the credit card theme by dispelling some common myths and giving you some pointers to keep your credit card game organized.
The no-brainer, stop bugging me about credit cards approach
The main reason to use credit cards, at least for financially savvy people like us, is to accumulate rewards. With a rewards credit card, every time you spend money, you get rewarded. The most lucrative rewards are in free travel, but to maximize those will take a little bit of management as described in the section below. Some people I know don’t want to have to deal with that. In fact, they don’t really want to deal with credit cards at all. But even by following the most basic of strategies these people can earn thousands of dollars of free money over their lifetime. For those people, I present the simple, one card portfolio:
The Citi Double Cash Card
This card is the picture of simplicity. There’s no annual fee, no sign up bonus, and no spending requirement. It’s main benefit is 2% cash back on all purchases (one percent when you buy something, one percent when you pay your bill, hence the name Double Cash). You can take this free money and put it directly into your checking account. If you are really averse to dealing with credit cards, here’s my advice: get this card, set up automatic payments for your full balance each month, use it every time you make a purchase that accepts credit cards, and enjoy your free money.
The most lucrative credit card combo: The Chase Trifecta
In my opinion, the best combination of credit cards for most people who do any kind of travel even semi-regularly involves three Chase cards that I and others refer to as the Chase Trifecta: The Sapphire Reserve, The Freedom, and The Freedom Unlimited.
The cornerstone of the trifecta is the Sapphire Reserve. This card comes with a hefty $450 annual fee, but this is largely offset by an annual $300 travel credit. Any type of travel, including paying for Lyft rides or even parking, will get reimbursed up to $300 per year. The spending rewards on this card work on a point system. Points can be redeemed in a number of ways, but the most bang for your point comes by redeeming for free travel. On the Chase travel portal, which has similar prices to websites like Expedia, you can redeem points for hotels, rental cars, or flights at a value of 1.5 cents/point. You can also transfer points to Chase “travel partners”, like Southwest or Hyatt for example, where points can often be redeemed at significantly more than 1.5 cents a piece. The best way to earn points is by using this card for dining and travel, where you’ll earn 3 points per dollar spent1You also earn 1 point per $ for all other purchases, but the other cards in the trifecta are better for those. , which translates to ≥4.5% back (since each point is worth ≥1.5 cents). The other major way of earning points is through the signup bonus, which is 50,000 (!!!) points. That alone is worth ≥$750, or 5 years of the annual fee if you include the annual travel credit offset. Unfortunately, you’ll have to spend $4,000 on the card in the first three months in order to take advantage, so I would wait to apply until you know you have a necessary large purchase coming up, like a medical bill or a new set of tires for example.
This card also comes with several other nice perks like Priority Pass Select airport lounge access, free insurance when you rent a car, amazing customer service, and Emerald club membership2You can reserve an intermediate size vehicle and then pick any car off the lot when you get there, including bigger vehicles if you’re travelling with friends! with National Car Rental among other benefits. There’s nothing sweeter than an ultra-frugal person travelling around the world for free and hanging out at airport lounges along the way!
Despite all these amazing benefits, the real power of the Sapphire Reserve is unleashed when it’s coupled with the Freedom and the Freedom Unlimited. These are both cash back cards, but when coupled with the Reserve this cash back can instead be converted to points. One cent of cash back can be converted to one point. But since 1 point is actually worth ≥1.5 cents, you’re getting ≥50% more value. Let’s use the sign up bonus as an example. Each card has a $150 bonus after spending $500 in the first three months. This $150 can be converted to 15,000 points. But 15k points are actually worth ≥$225. Sweet deal!
Both cards also have no annual fee. The freedom unlimited gets you 1.5% back (aka 1.5 points per dollar) on all purchases. The freedom has rotating 5% categories (and 1% back on everything else). Next quarter is Gas stations, Lyft and Walgreens. Last quarter included grocery stores. You’re essentially getting 8ish percent back in these categories, which is a whole lot of free money!
So there you have it! Two basic strategies for the credit card averse and the average Joe. Next week we’ll go over a few more essentials that will get you well on your way to enjoying all that credit cards have to offer.
PS If you’re planning on applying for a new credit card and would like to support the blog while you’re at it, let me know and I can refer you!