Maxing out on all the credit card rewards and bonuses such as miles and points requires a level of meticulousness and active optimization that is out of reach of most people, at least if you have a life and a job to do. Unless, of course, you want to turn your pursuit for points and miles into a full time career or a full time hobby. But this is still unsustainable. Racking up the rewards and bonuses might win you all the free flights, hotels and meals but it might sink you into a personal financial crisis.
Before delving further into this, it is important to understand the techniques that most people use to collect the miles and points via credit cards. The most obvious route is via the sign-up bonuses. You sign up for a new credit card such as Chase Sapphire Preferred Credit Card or Barclaycard Arrival Plus World MasterCard and you rake in the sign up bonuses when you hit the minimum spending limits. With the average sign up bonuses worth a whopping $350 in 2015, this could be a lucrative undertaking. Before you know it, you will have accumulated thousands of dollars worth of bonuses that you could use to travel the world for a whole year freely like George Clooney in Up In The Air.
If only it were so easy! There are only so many travel credit cards that you can sign up for which means that within a year or two, you will have exhausted your sign up bonus golden goose. And with the race to hit so many spending limits for the many credit cards that you have now acquired under your belt heating up, you will also have to juggle a host of annual credit card fees, credit card limits as well as limited redemption that you somehow must find a way of utilizing or risk them going to waste.
All of this juggling and spending acrobatics point to one thing: you are headed for a financial disaster unless you craft out a beginners credit card strategy that will help you put a lid on things and ensure your pursuit for rewards is not only profitable but also sustainable over the long term.
What credit card strategy can a beginner use to maximize on their rewards?
Here are some tips on how beginners can maximize on those credit card rewards so as to earn the most points and miles:-
Hit Your Spending Limit and Claim Your Sign Up Bonus
Imagine hitting a limit and claiming up to $625 in sign up bonuses! The sign up bonuses for some of the credit cards are simply too lucrative to ignore. Ignoring these is like watching money go down the drain. Most credit card companies will give you up to 3 months to hit your spending limit which is generally in the region of $3000 to $4000 for bonuses worth over $500.
When applying for new credit cards, check to ensure that they have a sign up bonus and look at the amount that you are required to spend and the duration over which you need to spend it so as to unlock the bonus. Generally, the larger the sign up bonus, the larger the spending limit and the longer the time duration during which you are required to hit that limit. Ensure, also, that you can hit the spending limit without sinking into debt. The required spend for the credit card should be able to suit your budget so do budget accordingly. Don’t spend emotionally and don’t be so blinded by the pursuit of the sign up bonuses that you become irresponsible with your spending. That would be counterproductive-pursuing savings while sinking deeper into debt!
Add an Authorized User to Your Card
There are credit card companies that will offer you an extra sign up bonus if you can add an authorized user to your card within a specified duration of time and if the user also gets to make a purchase. Just make sure that the person that you authorize is trustworthy and fiscally responsible. While authorized users can use your credit accounts, they do not have any legal obligations to make repayments so trust is very important.
Know where to spend your credit
If you have a minimum spending limit of say $3000 to $4000 that you must fulfill within a short duration of time, typically 90 days, you might agonize on where to spend your credit. You won’t want to splurge on things that you don’t really need just to hit your spending limit. At the same time, you must hit your limit in order to claim your bonus. So what gives?
Before signing up for a new credit card with a sign-up bonus, you need to have your spending plan clearly mapped out and there are plenty of opportunities where you can have your credit card charged without throwing away money. These include the following:-
- Paying your insurance online including health insurance, auto insurance and home insurance.
- Paying your federal taxes via credit cards. There is generally a small fee for this but as long you don’t make it a habit, you should be ok.
- Paying your rent, college tuition, car loans, mortgages and utilities online. While many banks and other financial institutions will not allow you to make these payments via credit cards, you can use other third party services such as ChargeSmart and WilliamPaid to make these payments via credit cards and pay a fee, typically 3%. Now, 3% might not make sense if you are only earning a single point for every dollar spent but if you are spending money to hit your credit spending limit and claim $500 or $600 sign up bonus, a 3% fee is definitely worth it!
- Buying gift cards for future use so that you can hit your spending threshold quickly. Buying gifts cards is essentially saving money; it is like buying money for future use. Many retailers offer gift cards and there is generally a limit and a small fee charged.
- Reimbursement for Business Expenses: It is a prudent financial management habit to keep your personal and business credit cards separate. However, if you are pursuing the sign up bonuses, you could, use your personal credit card for business expenses so that you can hit your credit card spending limit quickly and you also get to be reimbursed by your company for your expenses. It might not be the most ethical way but if you are in a fix, it is a perfectly legal way to hit your spending limits. Just make sure that you understand your employer’s reimbursement policy otherwise you could chew more than you can swallow.
Get a Small Business Credit Card
Small business credit cards can be issued for all kinds of businesses. So, even if you are a solopreneur, you could still be eligible for one. Just check with the credit card company to see the eligibility criteria. If you are running a startup or have some limited business income you could qualify. The advantage with these cards is that you can gain miles and points from various bonus categories that may not be available on your personal card so these can neatly complement your personal cards.
Couple Your Credit Cards
Another way to maximize on your credit card bonuses is by coupling your credit cards so as to optimize your rewards. There are various cards that work together nicely. By combining the % bonus categories of these cards, you will maximize on your rewards. Two cards that you can couple to maximize rewards are the Chase Freedom and the Chase Sapphire Preferred Card. You can buy something with the Chase Freedom card, earn generous 5% rewards and then transfer these rewards to your Chase Sapphire Preferred Card which is a travel credit card that you can use to redeem against various travel offers. Skilled travel hackers transfer credit card rewards easily into frequent flyer miles and get the best travel deals.
Avoid the credit card fees
If you are planning on pursuing your spending limits and rewards without raking in massive credit card fees, use your cards on purchases that do not carry fees. These can include everything from groceries to subscriptions, travel, and entertainment among others. However, to avoid fees or penalties, make sure you pay for these purchases at the end of every month.
Use the Bonus Malls
Many of the card issuers have bonus malls where you can earn great discounts and rewards when you use your credit cards. Why not utilize these when shopping online and rake in the perks painlessly? To check for deals, open the bonus mall website and browse the latest deals from your favorite retailers. You can then pay with the issuer’s credit card to maximize your rewards.
Choose the right credit cards
Part of your credit card strategy also involves signing up for the points currencies that will give you the best value in terms of the sign up bonus, annual fees and rewards. Other things that you look out for include flexibility in redeeming your points or miles, and ease of points transfer from one program to another. Some of the best travel credit cards that you can consider include the following:-
- Chase Sapphire Preferred Card: This is a great all-round credit card. You will earn 2X miles on your dining and travel and you don’t have to grapple with foreign transaction fees.
- Premier Rewards Gold Card by American Express: With this card, you will earn triple points on your airfare and double the points when you spend it on your gas and grocery.
- Barclay Arrival Plus World MasterCard: This is a cash-back card that can be redeemed for statement credit. When you use it, you will also earn back 2.1% in travel.
- Starwood Preferred Guest Credit Card by American Express: This is a great card for earning points on your hotel stays and the best part is that these points are also transferable to numerous airlines!
Avoid over diversifying
If you are beginner just starting out to accumulate miles and points, watch out on over-diversifying your credit card portfolio. To qualify for an award, you will have to rake in tens of thousands or hundreds of thousands of miles and if you spread yourself out too thin, you will never be able to accumulate enough miles on any of your credit cards to redeem for anything worthwhile.
However, it is also important to sign up on various programs in order to make the most of all the available rewards. Beginners should begin with at most two or three of the above cards and then build it out gradually. Don’t be tempted into signing up for numerous cards at once. Your card acquisition strategy should be gradual and steady. But don’t be too cautious and conservative. Occasionally, credit card companies issue out massive offers that you simply cannot ignore so you may need to watch out for these and take risks once in a while.