Maximize Credit Card Rewards Without Turning it into a Full-Time Job

Focus Your Spending On A 2% Cashback Card. Potential Savings: $100-300 on $10,000-30,000 of Annual Spending. Difficulty Level: Low

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What is the best rewards credit card? It really depends on how much you spend, and what you are looking for. There is an entire corner of the Internet devoted to maximizing every last dollar of rewards, often recommending different cards for each spending category. I used to be part of this world until I realized the time and risk involved in balancing several credit cards is just not worth it, with few exceptions. Here is my basic advice, which will work well for 95%+ of people.

Before considering a cash back card

Do you ever carry a balance or miss a payment? If so, this probably isn’t the post for you, but if you can do so, it is definitely worth putting your balance on auto-pay to ensure this never happens.

The best way to compare different cards is to think about the value you receive per dollar of spend

For cashback credit cards, this is easy enough.

For travel cards you need to calculate the value of the miles, and then divide that by the amount spent to earn those miles. For example, if $10,000 of spending earns you 10,000 miles that you can use to pay for a $150 flight, then each $1 of spending is worth 1.5 cents ($150 divided by $10,000).

For point-based cards (for example, card awarding Citi ThankYou Points or American Express Membership Rewards), calculate the point value. For example, if $10,000 of spending earns you 10,000 Membership Reward points that can be used for a $75 Amazon.com credit, then each $1 of spending is worth 0.75 cents.

Once you have done this, consider which card offers the highest value per dollar

If you are a very frequent traveler - more than $10,000 in spending with the same airline or hotel chain - it’s possible a travel-based card is the best deal. But for most people, you will maximize reward value with a card offering at least 2% cash back (not points, not miles) on your purchases, with no annual fee.

There are currently only two cards I know of that reward you with 2% of what you spend - the Citi Double Cash Card and the Fidelity Visa Card (for Fidelity accountholders).

Many other credit cards employ various tricks to make you think they are a better deal. Let’s go through two of the tricks issuers play.

Point and Travel Hyperinflation

Card issuers have aggressively “devalued” many miles and point systems. Increasingly, many miles and points are worth less than one cent of value per point. One of the psychological tricks issuers play is offering more than one point per dollar (which we associate with more than one cent), but offering redemption opportunities that are worth well under one cent per point. Many of the most popular redemption opportunities for Citi ThankYou Points and American Express Membership Rewards Points are worth less than one cent per point, and increasingly miles are worth less than one cent each unless redeemed for international or first-class flights (not a common situation unless you are an extremely frequent traveler). There are always exceptions, but if you are going to go against this general rule, make sure to actually run the numbers rather than relying on a vague notion that the card is a better deal than a simple cashback card.

Category Games

Many popular cards offer 1% (or 1 point) on general spending, but 2% or more on fixed or rotating categories of spending, such as gas, restaurants, or office supplies. This often tricks people into thinking they are getting a good deal when the bonus cashback is often capped at a very low level of spending. If you do the math on your total spending, it is highly unlikely that your total cashback exceeds 2% of your total spending with one of these cards. The one possible exception to this is the Amazon Prime Visa - if more than 40-50% of your spend is through Amazon, this card might be a good deal for you, and might even be worth using in conjunction with other cash back cards (such as the Citi Double Cash Card).

Summary

So, if you are a power traveler it’s possible, but not likely, that a travel-based card is best for you. And if you are one of a small group of enthusiasts who actually enjoys tracking many cards to maximize your rewards, you probably don’t need this post.

Otherwise, it’s best to run the numbers on which card will maximize your redemption value. If you’re like me, a 2% cashback card (like the Citi Double Cash Card or Fidelity Visa Card mentioned above) maximizes your rewards while also leaving you with more time to think about things more interesting than credit cards. In our case, it’s not even close.

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