You Really Should Spend More On Your Credit Cards

I usually avoid clichés like “it takes money to make money.”   But when it comes to using credit cards effectively, that saying captures the situation perfectly.   So long as you have the means and discipline to pay off your balance each month, then you can easily earn 3% or more back in cash and points simply by using credit cards instead of cash, debit cards, or checks for your everyday purchases.

A good friend of mine correctly pointed out to me once that the prevalence of credit cards has resulted in one of the biggest shifts of wealth from the less fortunate to the more fortunate – it’s effectively created a societal regressive tax.  Because so many people will rack up debt and repeatedly incur late fees and finance charges, the credit card industry encourages everyone to take on more credit cards with increasingly enticing points and cash back offers.   So long as you can afford to pay off your credit each month, you get a 1 – 5% discount on what you bought that month and may also have earned some form of status that will give you additional savings in the future on flights or hotels.   However, if you maintain a balance, by the time you finally pay off each purchase, you may spend an additional 50% or more after all the months and months of financing charges and interest.   The credit card issuers know that more people will pay interest than will collect rewards without carrying over balances, so the issuers are happy to offer everyone these potentially lucrative offers.

Please only take the following advice and increase your use of credit cards if you do not currently carry a balance on your credit cards and you truly believe that increasing your use of credit cards will not result in your carrying a balance in the future.    Please also be careful to compare your pre-credit card era purchasing habits with your post-credit card era purchasing to make sure that you are not spending more just because you are using credit.    There have been numerous studies suggesting that you will subconsciously spend more at a store or restaurant or vacation if you are not parting with cold hard cash at the time of each purchase, but instead are just swiping a piece of plastic.

Now that we’ve addressed the caveats that you must have good control over your spending habits and know you’ll pay off your credit card purchases each month, let’s get to the point: you can easily make 3% or more in cash and cash equivalents by strategically using the right credit cards for your purchases.   I’ll discuss in a future post how I calculate the cash equivalency of my points cards, but for the most part, I use cash-back cards over points cards anyway.    Here is what is currently in my wallet and why:

  • Citi Double Cash – This is my default credit card, meaning if what I’m buying doesn’t specifically fall into a category for one of the cards below, this is the card I use. It puts my cash-back floor at 2%.
  • Chase Freedom  – Although not as rewarding as this card originally was, it’s still a useful card for getting 5% cash back in rotating categories each month. I use this card only for making purchases in the qualifying 5% category that quarter.   You must click a link each quarter to earn that cash back, and be sure not to spend more than $1,500 each quarter in the extra cash back categories, or else you’ll drop to 1% cashback, half of what you’d be getting with the Citi Double Cash.
  • Citi Dividend – Much like the Chase Freedom card, this card was originally a lot better deal, but still great for getting 5% cash back in rotating categories each month. I find the categories aren’t as good as those on Chase Freedom, but at times it has a category like airlines or grocery stores, where I may easily spend a couple thousand dollars in a quarter.   You must click a link each quarter to earn that cash back, and there is an annual cap of $300 ($6,000 of annual spending at 5%) for how much cash back you can earn at 5% in a year.   If you reach that cap, put the card away until January of the following year.
  • Sam’s Club Mastercard issued by Synchrony – This card gives you 5% cashback on gas (at all gas stations, not just Sam’s, with the exception of other clubs like Costco), 3% on restaurants, 3% on travel (airlines, hotels, rental cars) and 1% on everything else. This is the only card I use for gas, and very frequently is my go-to card for restaurants and travel, unless they fall into a 5% category on another card.   Costco has a very similar card, where you get the exact same benefit, except 4% back on gas instead of 5%.   You also get 2% back at Costco on this card.   I recommend you get the card for the club at which you belong, and they’ll often give you a one time $30 to $60 instant refund at the register the day you sign up for the card in the club.
  • Certain Airline and Hotel-specific cards – The following cards are solely used for the airline or hotel with which they’re associated (with the exception of my spending more during the first month or two to hit the minimum spend to get the opening mileage bonuses). Beyond often offering a cash-back equivalent via miles or points that is worth well more than 2% cash back, they also provide added benefits like free checked bags, huge initial miles/points bonuses, or increased status at the airline or hotel (which in turn means more points or miles or other valuable perks).  As you’ll see, I pretty much only fly three airlines and try to stay at Hilton-branded hotels (usually Hampton Inn) so I realize I may not be capturing the airlines and hotels that are relevant to you.
    • JetBlue Plus Barclays Card.  Although this card has a $99 annual fee, the 30,000 miles after you spend $1,000 as well as the free checked bag for you and family members flying with you make it well worth it over the standard JetBlue card.   Even if you only pay for it for one year, those 30,000 miles are worth well more than $99.
    • Southwest Chase Business and Personal Cards. These cards carry annual fees between $69 and $99 and give mileage bonuses between 40,000 and 60,000 miles each depending on the time of year and what promotion is going on.   You’ll likely have to spend $1,000 or $2,000 on the cards to get the promotional miles, but those miles are worth well more than the annual fee and opportunity cost of missing out on cashback from those purchases.   Plus, one of the best perks in the airline industry is the Southwest Companion Pass.   Once you hit 110,000 miles in a year, you basically get buy-one-get-one on Southwest for you and your favorite person for the remainder of that calendar year and the following year.
    • American Airlines AAdvantage Platinum Select Citi Card. There is typically a $95 annual fee, but it’s waived for the first year (perhaps keep the card for just shy of a year).   With $1,000 of spending you’ll get 30,000 miles plus a free checked bag on American for you and your family flying with you when you use the card to buy your flight.
    • Hilton HHonors Amex –  This card does not carry an annual fee, and although there are other Hilton cards that give more upfront miles, this is a nice one to use just for booking with Hilton-affiliated hotels.   You automatically get a Silver Status with a 50% point bonus at the hotel, plus an additional 500 points per online reservation, and another 7 points per dollar for using the card.    I average over 25 points per dollar spent for my typical stay, which is the equivalent of over 10% cash back when you consider a $150 room can be booked with 30,000 points.


Being I started with a cliché, why not end with one: “if you can’t beat ‘em, join ‘em.”   I am not saying that the credit card industry is good for society or that I am supportive of the regressive tax discussed earlier, but until the industry changes, the smart thing to do is to select and start using a group of credit cards that will give you 3% or more cash value back for every dollar you’d otherwise be spending.

I’m sure there are many great credit card offers that are not even on my radar screen.   Please share them in the comments, and I’ll be sure to update this article in the future with some of the best deals.


Get the articles as soon as they hit the blog!

Posted in

Mr. Financial Independence

1 Comment

  1. Kristine on December 13, 2017 at 6:05 pm

    I use the same methods. I like my Discover card, which also has the rotating 5% cash back. I also use my Fidelity visa, which has 2% cash back for any purchases as long as it’s deposited into a Fidelity account. I plan to let the rewards accumulate through January 1st and then jump start my Roth IRA with them.

Leave a Comment