The credit card companies are at it again – conjuring up new ways to convince you to sign up for their latest and greatest rewards credit card. Last week, their evil schemes drew me into a search for the best rewards credit card.
It all started earlier this year when I decided to take advantage of a 0% APR Disney credit card to finance my family’s Thanksgiving vacation to Disney World. The reward points earned from the card can be used on Disney products and at Disney theme parks. Points are earned at the rate of 1% so every $1,000 spent using the card is equal to 10 points.
We had so much fun at Disney World that on the drive home we already started planning our next trip and decided to continue using the Disney credit card to bank points for our next vacation. After figuring up a rough estimate of our monthly spending I realized that 1% would not be enough to get us back to the land of Mickey anytime soon. The hunt for the best rewards credit card began.
Credit Cards Have Gone Viral
Back in September, I read a Bloomberg article about the latest credit card from JP Morgan Chase – the Sapphire Reserve. The article described how crazed credit card junkies were posting “unboxing” videos on YouTube.
When the first cards were shipped, some customers posted “unboxing” videos on YouTube, reverently exhibiting terms-and-conditions pamphlets to the camera. The videos have garnered more than 60,000 views; the Reddit thread has 10,000 comments. The hype usually reserved for a new iPhone was now being applied to a high-interest line of credit. And until mid-September, Chase hadn’t spent a dime on advertising.
Turns out Bloomberg wasn’t lying. A quick search on YouTube lead me to some interesting unboxing videos. In the one below, the new cardholder was so excited he interrupted his pizza dinner to shoot a quick unboxing video. Who chooses credit cards over pizza!?
Reading the Bloomberg article and viewing a few unboxing videos made me wonder if the Chase Sapphire credit card was right for me. After all, this is a credit card made of metal and just holding it in my hand will make me feel rich.
It is a travel focused credit card that rewards cardholders who spend on dining out and travel. The card has an annual fee of $450! Yes, you must pay for the right to acquire more debt. The card earns rewards at a rate of 3% on travel and dining but 1% from spending on everything else. So, the Chase Sapphire card was not a fit for me because I would simply not earn enough points to offset the $450 annual fee due to my low annual dining and travel expenses. The search continued.
Types of Rewards Credit Cards
There are two main types of rewards credit cards. Travel and cash back. Travel cards are designed to reward people who spend a lot on travel and dining out.
Cash back cards earn rewards for spending on everyday expenses like gas, groceries, and retail stores. This seemed like a good fit for me since this is where most of my spending tends to be.
Then I discovered there are so many ways to earn rewards. Here are just a few of the cash back rewards options:
Citi Double Cash – Earn Cash Back TWICE with 1% cash back on purchases and 1% cash back as you pay for those purchases.
Chase Freedom – Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate and unlimited 1% cash back on all other purchases.
American Express Blue Cash Everyday – Earn 3% at Supermarkets, 2% at gas stations and select department stores, 1% on other purchases
Ugh, I needed a way to figure out which one would match my spending.
Useful Credit Card Websites
A quick Google search for “best rewards credit cards” lead me to a helpful post from Nerdwallet that compares and contrasts the pros and cons of some of the most popular credit cards of 2016. This is a good place to start if you are feeling a little overwhelmed like I was when I first began my credit card hunt.
I relapsed as I read about the strategy of pairing a travel credit card with a cash back credit card. How many hoops am I willing to jump through to earn a little return on my spending? Am I going to have to pay taxes on these rewards? More questions began to arise.
CreditCardTuneUp has a calculator that takes into account your spending to recommend the best card for you. The problem is it always shows the Sapphire Reserve card as the best. That’s due to some of the travel perks of the card and how CreditCardTuneUp factors them in. It did help me narrow down my search to strictly cash back credit cards since it was clear the travel cards were not a fit for me.
Calculating Your Annual Expenses
The best way to calculate your potential rewards is to create a spreadsheet and estimate your costs for the various spending categories. Dining and travel earn 2% on the Sapphire Preferred and 3% on the Sapphire Reserve. Create formulas to calculate these cells based on your spending (= cell * .02).
After you narrow down your search to a few cards, this becomes a lot easier. With a little excel knowledge, the formulas should be pretty simply to create. Feel free to reach out to me in the comments below if you need help.
The best rewards credit card for me was…
After careful consideration and eliminating cards with annual fees, I went with the Chase Freedom card. My family’s expenses tend to be at department stores and grocery stores. The card rotates 5% bonus rewards quarterly for different types of retail outlets. I am expecting to earn $400-500 per year in rewards. This isn’t a ton of money but the way I see it, if I’m going to spend the money anyways I might as well get a little bit back. This is more than double what I would receive with the Disney Credit card that earns 1%.
I haven’t decided if I will make an “unenveloping” video when my Chase Freedom card arrives.
Finding the Best rewards credit card for you?
The best rewards credit card for you depends on your spending habits. Using the websites I mentioned and creating a spreadsheet in excel to estimate your expenses is the best way to figure this out.
These rewards schemes are designed to make you put money on the credit card. Don’t fall victim to their schemes by failing to pay the card off each month. Most of these cards are charging a 15% APR – so your rewards will quickly be eaten up by interest charges if you do not pay the card off each month.
If used properly, rewards credit cards can be an easy way to earn a 1-3% return on your spending. Let me know which rewards credit card you choose in the comments below!