Credit Card Update

In my previous post about credit cards I talked about how the Fidelity card was the one card everyone should have. In addition to this card people should look for ways to continually improve on their situation. One of the best options to improve upon the 2% base offered by Fidelity was to use the Sallie Mae MasterCard, which offered 5% cash back at grocery stores, gas stations, and bookstores (which included Amazon). In December, Sallie Mae sent out a letter notifying their card holders of changes to their cards agreements, which would take place at the end of February. The new benefits include 2% cash back on grocery and utilities payments and 1% of everything else.

Basically the new Commence by Sallie Mae MasterCard is an inferior choice for optimum credit card efficiency.

 

This change has driven me to reevaluate all credit card options available. This post is summary of my findings and the path I choose.

As with all credit card discussions, none of this matters if you don’t pay your balance in full.

FIRST THINGS FIRST: EVALUATE YOUR SPENDING

Prior to looking into the various credit card options I collected every transaction my household has had in the past year and grouped them into categories (grocery store, gas station, and restaurant). The purpose of this is to identify the size of the opportunity in those various categories. Once you’ve identified a few categories that show the most promise you can begin looking for a few credit cards that can help you reduce your expenses.
Without a clear understanding of where your money is going it will be very difficult to correctly identify opportunities for improvement by using credit cards.

 

While evaluating my household spending several categories popped out that were high compared to others. In addition to being high value targets the spending was also eligible for credit card spending. When you graph the category totals you’ll find that you get a graph like the one shown below. For example, your rent maybe a high value target for cost reduction, but you can’t pay your rent with credit cards because it is against the terms of the agreement. The categories and optimal card I identified are listed below.

Grocery Spending

In the grocery category I identified the American Express Blue Cash Preferred Card. This card does require a $95 dollar annual fee. In order to calculate if this is a good choice you’ll need to know your annual spending in the grocery category. The American Express card offers 6% cash back on spending at grocery stores. This is a 4% difference between the American Express card and the base line Fidelity option. This means you need to have at least $2,375.00 in grocery store spending before you should consider applying for American Express Blue Cash Preferred Card ($2,375.00*4%=$95.00).

Gas Station, Restaurant, and, Costco Spending

Citi offers a credit card called the Costco Anywhere Visa. The perks for the card are 4% cash back at gas stations, 3% at restaurant, and 2% at Costco. The main drawback of the card is that it requires a Costco membership. If you already have a membership this card should be a slam-dunk, but otherwise you’ll need to consider that your spending in the categories of gas, restaurant, and Costco must overcome the base 2% cash back from Fidelity and cover the cost of membership generally $55 dollars. To check that multiply your annual gas station spending by 2%, your annual restaurant spending by 1%, and your annual Costco spending by 2%. Add those together if that number is greater than $55 then you can justify getting the Costco Anywhere Visa

Amazon Spending

Amazon now offers its own branded credit card for people who are prime members. Our household has a prime membership. I’ll be honest I’m always on the fence on whether is worth it. The 2 day shipping and streaming video selection have kept me on-board for the past 3 years and I anticipate we will continue to see value from the service. If you want to try it out please use my link for a free 30 day trial. The Amazon credit card simply offers 5% cash back on all items purchased from Amazon.

Please share your credit card strategy in the comments!

Just a reminder I am not compensated for any credit card recommendations here. I am an affiliate with Amazon and am compensated a small amount for each sale made by someone who uses my link. If you would like to do me a favor copy this link into your favorites and use it to navigate to amazon. http://amzn.to/2klSyPo

The One Credit Card Everyone Should Have

Previously I talked about how important it is to use rewards credit cards. Today I wanted to share with you the best credit card I have ever found and explain why it is the card everyone should be carrying.

Unlike basically every website in the world that discusses/reviews/recommends credit cards I am not getting anything in return for this recommendation. In fact, when I was doing research for this post I found that most credit card sites don’t even mention this credit card. My only motivation for creating this post is purely to help you operate your lifestyle in a more efficient way. I have no bias what so ever when I give you this recommendation.

So what is this secret miracle cure all credit card?

The Fidelity Visa Signature Card.

IMG_1725
My Fidelity Visa Signature Card

This card is special because it offers 2% cash back on EVERYTHING. If you are using cash or debt cards to make your purchases this is a life changing amount! You might think, oh who cares 2% is nothing, but the difference is huge. It is going to take me an entire post next week to fully explain the implications.

This card does require you to sign up for a Fidelity brokerage account to receive your cash back. This is a slight inconvenience, but only takes a one-time effort to setup and from then on you can deposit your cash back into your brokerage account and have your brokerage account transfer the cash into your normal checking account.

Another point worth mentioning is that this card does not have any annual fee. You will never have to worry about using it enough to justify its cost like other rewards cards.  The interest rate is 14.24% on purchases, but it shouldn’t matter because you will not be paying interest on the card, right?

There are other cards out there that offer higher percentages of cash back rewards (and I recommend a few of them), but none are as simple as this card. Everyone should be carrying this card as a baseline. Without having to think you can be assured you are getting 2% cash back everywhere Visa is accepted.

Let me know in the comments what tactics you typically use when it comes to credit cards.

Efficient Capital Strategy – Use Credit Cards

I have read several personal finance books over the last five years. One of the books I read was written by Dave Ramsey.  In his book he talks about using an envelope system to budget. If you aren’t familiar with the envelope system, you basically have separate envelopes for every budget category in your household (i.e. groceries, water bill, house payment, entertainment, etc.) and when you get paid you put the budgeted amount of cash into the corresponding envelope. When you buy something it comes out of corresponding the envelope, and when the envelope is empty you stop buying things.

I think this method is for people with absolutely no self-control. If you have just a little self-control and care about being better in life like I do, then you need to be using credit cards rather than cash and envelopes.

Paying in cash is not efficient!No Cash

Let me explain why. Every time you use a credit card the credit card company charges the merchant a small fee to process the transaction. You pay the merchant the exact same amount whether you use cash or credit. Where you gain efficiency is that some credit card companies offer to split their earnings with you as a way for you to use their business. These are called rewards credit cards.

Before I get into the benefits of rewards credit cards, let me interject my disclaimer for credit card use.  You MUST pay off your credit card in full every month. Just like with the envelope system, where you cannot use more cash than is in your envelopes, you should not be charging more than you have the cash to pay for.  Acquiring credit card debt with high interest payments is a very poor idea and inefficient way manage your capital.

Ok, so back to rewards credit cards.  There are basically two schools of thought when it comes to rewards credit cards.

  1. Sign Up Bonus Only

The first school is to look for credit cards with initial sign up bonuses. Many credit companies offer high bonuses to sign up with them and then spend X amount of dollars.  After the initial sign on bonus the “cash back” incentive is usually nothing to very low (less than 1%).  Therefore, to make this reward work in the long term you have to look for and sign up for new reward credit cards with high bonuses.  In my opinion this option has higher total rewards, but is much more time intensive.

  1. Best Overall Rewards

The second school of thought is to look for credit cards that offer the best overall rewards.  Credit cards that offer best overall rewards offer “cash back” in the form of up to 2% of the money you spend.  Although this may seem like a lot less than initial sign up bonuses, the 2% is for the duration you hold the credit card; thus, you set it up once and the time needed to manage your finances will be minimal.

Both of these types of rewards credit cards give you money back for your purchases and help you gain something from your spending, rather than using cash and gaining nothing.