Making Your Credit Cards Work for You

Various Credit CardsI have promised to write about how I use credit card rewards for maximum effect. I am not an expert at this and I’m sure I miss out on some opportunities; if you want to wring every last bit of value from your credit card rewards, do a quick web search and you will find many websites dedicated to the process. But before I can talk about rewards, I have to talk about a few other things first.

Credit Card Debt


I know that you all already know credit card debt is bad. It hurts your present finances and your future finances, and it usually brings constant stress and worrying. Approximately 38% of all households in the U.S. carry some sort of credit card debt, and the average balance owed is  over $16,000. And because of the steep interest rates many credit cards charge, it’s really hard to dig yourself out of those debts. As an example:

$16,000 balance owed
15% interest rate (some cards are lower, but many are even higher than this)
$250 monthly payment
After one year, your balance will be $15,357, just $643 lower – after paying $3000 total towards your card.

To eliminate debt, you basically have two options: earn more or spend less. Even better, do both. Easy to say, hard to accomplish, and this post is not meant to be a how-to-magically-get-out-of-debt guide. Truly committing yourself to eliminating your consumer debt is an involved, focused process that takes a lot of evaluation and hard work. If you have multiple debts, this is a great snowball calculator that can help you figure out how to get started. I’m leading off with this section because if you have standing credit card debt, you should first be focused on cards with the lowest interest rates instead of cards with the best rewards, and you definitely should not even think about cards with annual fees.

“I Pay My Cards in Full Every Month”


If you are at this stage, good for you! It is a great feeling to use credit cards to your advantage but never pay any interest charges. However, I challenge you to take it one step further. I have been consumer debt-free for about 14 years now, and for many of those years I used my credit cards for everything and paid them off at the end of the month. Practically, what that meant was that I was paying off last month’s spending with next month’s income. This is called living on the “credit card float.” It’s not the worst thing in the world, but what if something happens – a layoff, a reduction in work hours, an emergency furnace replacement? You can so quickly go right into credit card debt.

I give full credit and props to the YNAB system (You Need a Budget; see here for my full post on it) for turning around my thinking on this subject. I still pay my cards in full each month, but I’m paying them off with the previous month’s income. I never pay for anything with my credit card without knowing I have those equivalent dollars sitting in my checking or savings account, waiting to be sent to pay off the credit card bill. This gives me a huge sense of peace, especially when those unexpected expenses pop up – as they always do. Instead of scrambling to cover them from the back end, I have a month to adjust my budget to deal with the expense. I highly recommend this form of budgeting – using past dollars to pay for future expenses – as it will significantly reduce your financial stress.

Credit Card Rewards

As I said in my introduction, there are many websites and blogs devoted to maximizing credit card rewards. I have found a method that works for me, and I’m okay with leaving some advantages on the table for the sake of greater convenience. I have three cards that I use, and they all happen to be Chase cards. I am not receiving anything from Chase if you use this blog to click on any links. I will talk about these from a personal point of view; details of the card programs are available if you follow the links.

Chase-Sapphire-Preferred-Credit-CardChase Sapphire Preferred: I have to admit that I love the look and feel of this metal card. The Sapphire Preferred has a high annual fee, $95, so don’t apply for it without doing your research and making sure you can devote the time and effort to using it properly to get more than $95/year in rewards (the first fee isn’t due until a year after opening the card, so you can always get it and then cancel it before your first anniversary). The current bonus for opening the account and spending at least $4,000 in the first 3 months is 50,000 points, which you can either cash out for $500, or use in other ways to try to get more value for them. The best thing about the Sapphire Preferred is the Ultimate Rewards (UR) program. You can use points to book flights, hotels, and rental cars, and you get a 20% point bonus when you book through the UR website. (Example: I have 20,000 points and I’m booking a flight on the UR website. Instead of having $200 in rewards to put towards a flight, I have $240, and if the flight costs $400, I can pay for the remaining $160 using my Sapphire Preferred card).

The card also gives you some amount of travel insurance and extended warranty protection (details change from year to year, so read the fine print). There are many frequent flyer and hotel reward programs that you can transfer your points to, point for point. I have found by far that the best value for us lies in transferring points to my Hyatt Passport membership. 8,000 points, which would be worth $80 cash back or worth $96 booking the hotel through the UR website, pays for a night at a Hyatt Place-level hotel: a solid, mid-level hotel that will cost you at least $125 cash a night. The Park Hyatt Tokyo that we recently stayed at costs 30,000 points a night (the equivalent of $300 cash back) – or at least $800 a night without points. Another nice little perk with the Sapphire Preferred: when you call customer service, you always get a live human being on the other end immediately.

9b6dd404a0111935aea674124f6ca0a1Chase FreedomI’m not actually using this card at the moment, because it’s the only one of our three cards that charges a foreign transaction fee. I have it on hiatus until we live in the U.S. again. This card offers a $150 bonus after you spend $500 in the first three months after opening the account. The Freedom takes a lot more work to use well, but luckily it has no annual fee so it’s no big deal if you get something wrong. There are rotating bonus categories every quarter that give you 5x reward points up to a certain amount. For example, for one three-month period, you’ll get 5x reward points on all grocery purchases. The next quarter it may switch to gas stations, or to any travel. Once you have points in your account, provided the same user is primary on both cards, you can move your points over to the Sapphire card and then transfer them to Hyatt, United, etc. If you don’t move the points, I think you can only get cash back from the Freedom card. I’m not sure, because I always just transfer the points over to the Sapphire.

hyatt_cardChase HyattThis is my newest card, and I absolutely love it, although I don’t use it very often. If you spend $1,000 in the first three months, you receive a reward of two free nights at any Hyatt in the world. Now you can understand how we managed four nights at the Park Hyatt Tokyo – two with this credit card sign-up bonus, and two with 60,000 points transferred from the Sapphire Preferred. After one year, you pay an annual fee of $75 but on your card anniversary every year you get a credit for one night free at any Category 1-4 Hyatt property, which is always worth more than $75 and often quite a lot more. You also get bumped up to Platinum Club status, which is the middle level of Hyatt’s Gold Passport membership. Platinum status gets you free internet (if the hotel charges for it) and other perks that vary from property to property. At the Park Hyatt Tokyo, for example, we received two free morning beverages each day. We ordered two café au laits, each of which came in a vacuum carafe and produced about 2-½ cups of coffee, and would have cost us around $28 each day but instead were complimentary. Obviously, if we didn’t have the perk, we wouldn’t have paid that much for coffee, but it was still very nice to have that come via room service each morning. Platinum membership also gives you a 15% points bonus on any spending at a Hyatt, as well as guaranteed late checkout. Points earned on this card go directly into your Hyatt Gold Passport account; there is no other way to use them.

So there you have it. Be wise, try not to cross into unethical behavior, and always pay attention to changing terms and conditions. You may wonder why we don’t get rid of the Sapphire Preferred and just use the Hyatt card for everything, if that’s our main use of the Sapphire points. Well, programs change all the time, and there aren’t always Hyatts in the places we want to travel to as well. I like the flexibility that the Sapphire card gives us in rewards, as well as the extra travel insurance and warranty protections.

One last note: often, you can earn bonus points by linking to an online merchant through the Ultimate Rewards website shopping mall. Always check there before you make online purchases to see if the store is listed. For example, just today I bought something at Home Depot online, and by going through the UR website I earned double points on the purchase.

Feel free to contact me with any questions you may have.

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