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By Francis Bayes, WCI Columnist
When my wife and I got engaged and started wedding planning, I knew we were going to pay for most of the expenses with credit cards. I already had a handful of credit cards. But for both our wedding and marriage, we needed a plan for them, just as we did for paying off debt and saving.
With most credit cards, earning signup bonuses that require $2,000-$4,000 spending in the first three months provides the best return on spending (ROS). As the average cost of weddings in the US was $35,000 the year we married, I hoped for us to open at least seven new accounts. Even if you are not anticipating any big spending soon, those who want to maximize their ROS should also have a plan for credit cards so that you open the right cards at the right time in the right order.
I share our story of paying for our wedding with credit cards to demonstrate why you need such a plan. Thanks to our strategy, we paid $0 for five hotel nights, which would have cost $2,800 in cash, during our honeymoon in Maui.
Understanding Credit Cards Rewards Programs
You need to understand the basics of credit card rewards programs before opening new accounts, just as you need to understand the difference between stocks and bonds before making the simplest investing plan with a total stock market fund and total bond fund. The most important principle is that you can only “win” when spending with credit cards if you pay the monthly statement in full. The interest you would pay otherwise will far outstrip any benefits you gain.
(As a disclaimer, I have received no financial incentives other than payment from The White Coat Investor for writing this column.)
Two types of credit cards exist (Table 1). Issuers separate them into “Cashback Cards” and “Travel Cards,” and the latter can be subdivided into “Miles/Points with fixed-value” and “Miles/Points for transfer partners” (miles = airline points). Travel cards have travel-related benefits ranging from no foreign transaction fees and free checked bags to airport lounge access and loyalty program status. However, the travel cards with fixed-value points should be grouped with the cashback cards, because the first question you should ask is not “What benefits do I want?” but rather “How much complexity do I want?”
The question of complexity is important because the travel cards that have the most benefits are also the most expensive in terms of their annual fee (ranging from $395-$695). You could use the simplest, set-it-and-forget-it cards and still have a greater ROS than someone who fails to take advantage of a premium travel card. For any premium card with (or without) transfer partners, you should be comfortable keeping track of various statement credits that a card offers and redeeming your credit card points with 1-2 airline and hotel transfer partners—unless you do not mind paying the annual fee for airport lounge access (e.g., the Centurion Lounge or Priority Pass).
Another layer of complexity with travel cards is that not all points are equal. You need to be aware of a point’s value, aka “cent per point (CPP),” when you (1) open a new account for the signup bonus, (2) choose a card to pay for certain spending categories (e.g., groceries, gas, restaurants), and (3) redeem points. One point earned with some type of cards is worth one cent. But according to websites like The Points Guy, one mile earned with a Delta SkyMiles card might be worth anywhere between 1.1-1.4 CPP, whereas one point earned with a World of Hyatt card might be worth anywhere between 1.7-2.0 CPP. With a Chase Sapphire Preferred® card (CSP), one Ultimate Rewards point can be worth well above 2.0 CPP by transferring points to an airline program and redeeming a first-class flight.
My wife and I knew a few things: we would fly a couple of times a year to visit our parents, we would have several cities on our must-visit list, and we would rather eat well than fly well. That is, when we are on vacation, we do not mind flying the cheapest available flight as long as we can stay at a central location near the best restaurants and street vendors. Thus, our initial plan was to maximize ways to earn and redeem free hotel nights. The two best ways to do so were to select hotel credit cards, which offer a free night on the account's anniversary, and Chase Ultimate Rewards points, which can be transferred to the World of Hyatt program with the CSP or Chase Sapphire Reserve (CSR). The following was Phase 1 of our plan:
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- I first opened a CSP, which had a higher signup bonus than the CSR, and then I referred my wife for her own CSP, netting us 135,000 points from two signup bonuses and one referral bonus (60,000 x 2 + 15,000).
- I already had a Chase Freedom card, so I referred my wife for a Chase Freedom Unlimited card, netting us another 30,000 points. (Only if the cardholder has a CSP account, the points earned with Chase Freedom cards can be transferred to partners and are worth more than 1.0 CPP.)
- We then opened two World of Hyatt cards, issued by Chase, for their signup bonus and a free night for each account holder on their account anniversary.
- Finally, she opened an IHG Premier card, while I opened a Marriott Bonvoy Boundless card. Both are issued by Chase, and they give a free night on account anniversary.
We only opened Chase-issued cards at first for a specific reason. Chase has a 5/24 rule in which you are not allowed to open a new credit card account if you opened five or more credit card accounts in the past 24 months (regardless of the issuer). After Phase 1 of our plan, we could no longer apply for another Chase credit card as we had opened non-Chase cards in the previous 24 months. But we did not need another Chase card.
In summary, assuming we redeem Chase and Hyatt points at 2.0 CPP, the 165,000 Ultimate Rewards points and 105,000 Hyatt points that we earned from the signup and referral bonuses were worth $5,400 (Table 2). With all of our new Chase cards, our estimated ROS (after annual fees) on $20,500 of wedding expenses was 31.1%, not including points earned from spending.
Here's what Phase 1 of our plan looked like.
Putting Our Credit Card Plan into Action
With Phase 1 completed, we moved on to Phase 2. Since we had enough points to fund a few more vacations with the Chase points, I wanted to simplify and diversify our credit card strategy. Because we would be flying at least once a year to visit my wife’s family, we wanted an airline card. We already had Delta SkyMiles cards, but since we rarely check bags and the ROS is not as high as other cards, we downgraded our cards to Delta SkyMiles Blue, which does not have an annual fee.
Then, we opened an Alaska Airlines Visa Signature card. The card provides free checked bags and a companion certificate on the account anniversary. That means we would only have to pay the price of one fare plus $121 in taxes and fees for the two of us—even during the holiday season. Moreover, the Alaska Airlines points have a higher CPP than those of other airlines when redeemed directly for a flight with either Alaska Airlines or its partner airlines. Similar to the aforementioned hotel cards, maximizing its benefits would cover its annual fee ($75) and then some.
We thought we would be content with the two-player strategy in which I use various Chase cards and my wife uses the Alaska Airlines card for our day-to-day spending. But then Capital One launched a new credit card: Capital One Venture X Rewards Credit Card (at launch, the signup bonus was 100,000). Its annual fee is $395, but several benefits made it an ideal card for us.
First, its annual fee could be offset after spending $300 on Capital One’s travel portal for booking flights, hotels, or car rentals, and you receive 10,000 points (worth at least 1.0 CPP) on your account anniversary. Second, earning 2 points/dollar for daily spending needs was a simple and solid ROS, and the points can be transferred to airline and hotel partners that are not available with Chase. Lastly and perhaps most importantly, other premium cards such as the Chase Sapphire Reserve and The Platinum Card® from American Express (rates and fees) charge a fee to add authorized users, while the Venture X allows up to three authorized users for free. We have added one of us and two of our parents, e.g., her father and my mother, so that each authorized user has access to its benefits, including airport lounge access and primary rental car insurance.
By now, you might know your answer to the question, “How much complexity do I want?” I think most people eventually settle down with a simplified setup due to a combination of: (1) running out of eligible signup bonuses, (2) having too many points already, and (3) being content with their current benefits. Our shift from Phase 1 to Phase 2 is similar to our investment plan in which I wanted to slice, dice, and optimize our portfolio before we chose a simpler portfolio. Unless you have a motivating factor (e.g., a wedding to pay for), how much you enjoy a complex investing plan might be a good predictor of how stressed you will be with different credit cards in your wallet.
After one wedding planning and 2 1/2 years of marriage, my wife and I own 16 credit cards, 10 of which have been opened since we started wedding planning (one unmentioned card is the Hilton Honors Surpass which had a signup promotion too good to pass up). Because we had a plan for credit cards, we opened the cards that fit our needs and provided a net positive value annually. As long as you pay the monthly statement in full, credit cards can make spending less painful for the frugal, traveling less stressful for business or family trips, and vacations full of rewards.
How much do you take advantage of credit card rewards? Is entering a complex credit card situation worth it to gain free flights and hotel rooms? Why or why not? Comment below!
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This is not a good use of your most precious commodity: Time. Nor is it consistent with the ability to Sleep Well at Night (SWAT). You have created a complex web that requires far too much tending.
We have 3 cards-a SouthWest loyalty Visa, an American Air Mastercard, and a Marriott Bonvoy Amex. We download all accounts into Quicken. All expenses are tracked. All are paid in full each month, by automatic transfer from checking. I spend about 10 min each morning, except at tax time. All bills are debited. With time, we have learned to maximize automation.
The credit card points are used to buy air flights for family vacations. That way, family members with lower income have less financial barrier to joining trips. “Don’t worry—the flights are on points.”
That is what we do. This approach may not work for everyone. Spend your time and mental energy wisely!
10 minutes a day for anything financial is too much for me! If I can’t go at least a month without looking at anything financial, something is wrong.
Credit cards don’t take me much time anymore. It’s kind of like investing where most things are on autopilot after spending a lot of time initially on financial plan/IPS. I just use the same cards day-to-day and transfer points when I’m planning trips. They are all linked to Mint, so it doesn’t take much energy keeping track of bills and transactions.
Good for you for sorting through all that & getting some awesome rewards, but just reading this article gave me a massive headache.
I’ve never looked this up, but I’m curious about any association between the effect of credit card rewards programs on overall consumer spending.
That association is very clear. When you use credit cards you spend more, at least on average. Maybe somebody is immune to that, but I think it’s a lot like docs that don’t think drug advertising/detailing affects them when the data is very clear that it does affect prescribing habits.
17 years ago, we started using credit cards to get out of debt! Credit card arbitrage. We were newly married and determined not to have kids while in debt. We knew nothing about investing or finances at the time, but we noticed banks were paying 5% just on checking accounts. We borrowed more money from credit cards (sounds crazy, I know!) using 0% interest, no transaction fees at the time. We opened a dozen credit cards (no idea why anyone would give us that much credit considering how little we both made at the time). We floated a few $100,000 on credit cards for 2 years and paid off our $25,000 in credit card debt. Once we paid it off, we continued this and started to save money, occasionally buying CDs, too. This was when I started learning more about investing. Now, we still have quite a few credit cards, but not nearly as much time. So we rotate cards based on spending or points/miles needed. I suspect I will play the credit card game more when I’m retired (my parents do).
I already play the CC game less now but will play it even less when I’m in residency. The game that you or I played might be appropriate for specific life circumstances but too intense for many life stages.
I’m working towards getting rid of my credit card completely. I had the realization a few months ago that my free vacation was being financed by the financial ruin of someone else.
In my mind it had always been a generous gift from the credit card company for being exceptionally brilliant and organized with my finances. The cashback and miles are coming from somewhere and it isn’t out of the pockets of the CEOs.
It’s taking me time to change my habit, but I’m no longer comfortable with pharm techs, nurses, MAs, EVS paying for my hotel rooms and plane tickets.
Interesting perspective. Don’t recall seeing someone with that one before, but it is true.
Where is the “like button”???
On Facebook and Twitter. 🙂
Interesting perspective indeed! How’s it different from “passive, buy-and-hold” investors benefitting because of “day traders” who might be your patients, pharm techs, nurses, MAs…and even your fellow physicians?
Fair question. Though I don’t really see those situations as equal.
In the credit card scenario, when their money is transferred to me they can only lose. There is no potential for them to gain as I’m not providing them anything of value.
In the stock situation, there is always the potential that the stock I sell them goes up in value or pays a dividend. Or, when I buy from them at what I consider a good price, that stock may have quadrupled in value from when they purchased. (i.e. we both have the potential to gain).
It’s a new paradigm for me and I fully realize
1. I’m leaving money on the table
2. There is nothing really wrong with receiving cashback. They agree to the same terms that I do.
3. I’m currently in a phase of not practicing what I preach. It’ll take me a minute to change this financial pattern.
4. I’ve benefitted in the 1000’s of dollars from this program. But, after watching a co-worker struggle with crushing credit card debt, I’m just no longer comfortable with being a part of this game.
The rewards are paid for via the merchant service fees the credit card company charges businesses that accept credit cards as payment. I assure you that the banks aren’t making any money off your co-worker suffering from crushing credit card debt. When the debt is finally eliminated in bankruptcy proceedings, the banks will be taking a loss. If your co-worker eventually pays of the debt, then good for them for actually following through with a contractual agreement that they voluntarily signed with the bank.
For active duty, credit card fees are waived under the Service member Civil Relief Act.
There is some merit to this article. I was able to use my credit card points to upgrade my parents to premium economy on a 24 hour long flight when they came to visit me in the US. I appreciate the lounge access that card gives me.
Beyond that however, I do not find this game very appealing. Thankfully, I’m well enough off to be able to just buy most things when I want it without worrying about getting a great deal. So I’ll just stick to doing that.
Good article about a tedious subject. I have found that optimizing things like this fall into the too much effort for too little reward category in my stage of life. 2% cash back set and forget for me
I’m with you.
“My stage of life” — that’s the key phrase. A few thousand dollars in savings is still huge for trainees. Like I replied to the comment above, the only time I now use my brainpower with CCs is for transferring points, which is likely as tedious as backdoor roth is for an experienced investor.
To reiterate, sign up bonuses provide the best return on spending. Your mileage may vary, but when you have a big purchase coming up (say, $3,000) you can typically save at least $500 (or more) by looking up ongoing sign up bonus promos and paying with a new CC. If you consider the time you spend negotiating with general contractors or car dealers, I’d think that 17% ROS is a pretty good discount at any income level.
The downside that nobody is bringing up is a particularly large one…namely the hit that your credit score takes each time you apply for a new line of credit. Even if there are no yearly fees, it is extremely hard to build a strong credit history if you open a ton of credit accounts. I think misusing credit is one of the easiest ways that people end up in financial dire straits and companies know this, which is why they are dangling those huge sign up bonuses in front of people.
One of the misconceptions about opening new CCs is that it will decrease you credit score. But credit score is calculated by avg credit history, credit inquiries, credit limit (aka) credit utilization. If you see FICO’s weights (link below), credit utilization is 30% whereas avg credit history and credit inquiries are 25%. So initially, opening new CCs decreases your avg credit history and increases recent credit inquiries, but it’s offset by increased credit limit. In my experience, it’s affected our credit scores very little.
But I can’t speak on what opening new CC: would do for those with subprime credit scores.
https://www.myfico.com/credit-education/whats-in-your-credit-score
I’m more concerned about the latter than the former. Far too many people worship at the altar of the FICO score.Just pay your bills and your score will always be “good enough” for whatever you need one for.
My Alaska card just raised its annual fee from $75 to $95.00!
Same for me (it increased since I submitted the draft).
If you use the companion fare every year, you might still come out ahead…too bad it doesn’t have a downgrade option like other Airline cards.
What does opening all these credit cards due to your credit rating?
Opening new CCs decreases your avg credit history and increases recent credit inquiries, but it’s offset by increased credit limit. In my experience, it’s affected our credit scores very little. But I can’t speak on what opening new CC: would do for those with subprime credit scores.
A few yrs ago I got almost 2 grand in cash back just by signing up online and spending X amount over a short time
who turns down free $$$$$
Do you have any set it and forget it card recommendations?
At this point my priority is avoiding headaches while still getting benefits – so extended warranty, purchase protection, and good customer service are important.
I wish First Republic Bank had a credit card!
It depends on your wants…even airline cards can be a good set & forget card. If you don’t want to bother with transfering points, using cards with fixed-value points would be best. Most “premium” cards have good perks like extended warranty and purchase protection. Before settling on Venture X, set & forget cards that I considered for my wife are the Alaska Air and Chase Freedom Unlimited cards. Some (attendings) would even consider AmEx Platinum as such a card despite its annual fee because of its credits and Centurion lounge access.
I travel for work and have always been strategic with the cards I use. But for some smaller businesses, I’ve started using cash or checks (one place that knows me well). The owner had a post on FB about how much CC fees were killing her, so out of concern to her, I switched. But overall, I still use them most of the time.
My husband plays the games to get bonuses but I find it a bit too much work.
Nice use of 16 cards Francis! I know this post put a lot of details, but I think having a lot of cards is easier than people think. It just boils down to getting the large signup bonus, downgrading/cancelling cards if you dont use it anymore, and then using just a few cards at a time for daily use (No one is going to rotate 16 cards day to day).
When you receive these cards do you downgrade them after rewards to make the annual fees go away?
If it’s a card that I signed up mainly for the sign-up bonus (or I no longer use), I downgrade after the account anniversary (i.e., one year from the date when I applied for the card), and I can receive a refund for the second annual fee. AFAIK, you forfeit the sign-up bonus if you downgrade/cancel before the account anniversary.
If it’s a card that I signed up mainly for its sign-up bonus, I downgrade it after the account anniversary (i.e., one year from the date that I applied). I then receive a refund for the annual fee that is charged on my account anniversary. AFAIK, you forfeit the sign-up bonus if you downgrade/cancel before the account anniversary.
I have never canceled a card because it would hurt my credit score by decreasing average credit age and total credit limit. This is why it’s important to check whether a card has a downgrade option to a no-annual-fee card.. E.g., You can ask for “product change” with AmEx Platinum, Gold, and Green, but you cannot change them to a a no-annual-fee card.
My biggest concerns here are 1) based on experience I believe many points valuation websites overstate the value (after all, they rely on credit card companies for much of their revenue), 2) the ever present threat of points devaluations, and 3) the level of effort here. I personally use a combination of high cash back credit cards and early spend bonuses to get a 5-10% average cash back rate, which doesn’t have any of those issues.
(1) I def don’t trust the points for airlines as much…but re hotels, I’ve found the valuations to be more conservative for some brands than others. (2) Devals are real! That’s why one has to “burn and churn” and not try to stock up too much on points. (3) This level of effort was for the specific circumstance (I discuss in other comments). We now only use 3-4 cards day-to-day…which may still be too many for some!
True, this involves time and effort with a learning curve on how best to earn and use the points , but so does any topic you care to learn. I spend as much time reading the articles from WCI as I do about points. I have friends that spend way more time attending REI seminars and going to networking pot-lucks in other cities. I’m shocked at some of the replies to this!
When I retired, I said my new job is to learn about points for traveling. It was confusing and seemed complicated at first, but once you understand it, it is routine. If you don’t care about travel, or about having travel experiences better than you’ve ever had (relative to any scale you’ve had), then this points world is not for you. Get a 3% cash back and forget about it.
Don’t tell me I’m wasting my time, it has enhanced our traveling lives far more than I imagined! There are more benefits than in the article.
The concept that points are “being financed by the financial ruin of someone else” makes no sense. Points and their value are created by banks and airlines. “The credit card points deals are lucrative to airlines,….allowing them to generate revenue by selling miles or points to credit-card issuers. The issuers, in turn, can then offer the points or miles as a perk to customers using their cards” :
https://thepointsguy.com/credit-cards/airlines/delta-air-lines/delta-air-lines-american-express-extend-partnership-through-2029/
It has nothing to do with someone’s crushing credit card debt, which they chose to create on their own.
Not only is this waaay too complicated, but you can recoup 90% of the value of what you are doing simply with 2 or 3 cards that cover different bases. Every time you apply for more credit you are setting yourself back and lowering your credit score – not to mention that certain cards reward significant expenditures/loyalty (AMEX, for example). I have 2 cards: one is a 2% cash back with no restrictions, and the other is AMEX gold (ridiculously great rewards if you eat out frequently and use it for groceries).
Easy peasy and I’ve had a >800 credit score for years, which is more valuable to me than earning back a couple hundred dollars each year using spreadsheets and needing a rolodex instead of a wallet.
I’m surprised that you use AmEx Gold because it’s a card that comes with (1) monthly credits that you need to keep track of and (2) high annual fee that might not be offset unless you maximize transfer partners. You might want to run the numbers to see if owning AmEx Gold is better than using 1-2 no AF cards that has 3-5% cashback on dining and groceries (e.g., Chase Freedom cards, CapOne Savor, BoA Customized Cash Rewards, etc.)
Re credit scores, see my comment above.
Those are fair considerations. For me at least, it makes sense. The monthly perks are nice, but not always applicable to me. Their concierge service is excellent. And the yearly fee is mainly offset by my occasional use of Grubhub ($10 monthly credits).
I’m considering applying for another card – the Citi AAdvantage Platinum select – because I fly AA fairly frequently and can easily rack up miles on gas purchases.
I think for my situation as a single guy (for now), 3 cards is going to be the maximum.