Credit Cards: The Misidentified Poison Apple

 The evil, dangerous, credit card myth

tl;dr – Don’t be scared of credit cards. Learn to make them work for you.

I want to address this notion I frequently hear – some variation on “credit cards are for irresponsible people,” or this sense of pride in being debt free because you haven’t fallen victim to the dreaded credit card. The former is just ridiculous – having a credit card does not inherently mean irresponsibility – and what would be irresponsible is miscalculating the difference between what you charge to a card and what you have money to pay for, or can reasonably afford to pay over time. The latter is understandable if you recently declared bankruptcy or successfully crawled your

way out from under a crushing debt, but overall, it misleads, oversimplifies, and discounts the potential return you could be experiencing by having just one really good card. It’s difficult to think of a travel strategy, especially one featuring discounts, which wouldn’t involve a credit card.

I’d like to preface by stating that I am not a financial advisor, nor do I claim to have personal finances above reproach. In fact, my current finances are a little strained. However, I understand exactly how I got to be strained (ignoring a budget & saying yes to too many things), and I’ve implemented a solid plan to fix it (entering the Year of No, among other things).

The key to credit cards is having a thorough understanding of how they work. This understanding would typically fall into three main categories: credit scores, payments & interest, and card benefits & annual fees. The better you know your card, the better you’ll understand how to make it work in your favor.

Credit score

First, it’s critical to understand how important a credit score is for doing certain things. From personal experience, my credit score has allowed me greater choice in securing new apartments (a higher score is part of what makes me look like a reliable prospect to a potential landlord – I am a reliable prospect, but it’s helpful to have it documented) and I really cannot understate how big of a role my score played in securing a 0% interest loan when I bought my car. This one little number has impacted where I live my life and how much it costs to live it.

Long story short, my personal goal is to always have a score that is in the upper range of “good” to the lower range of “excellent,” so roughly 750-810.

For a long time, I held the assumption that a new card would have a terrible impact on my credit score. While it’s true that a new card does have an impact, that impact is extremely small. I think my last card dropped my score by about 5-7 points, and it will recover most or all of that in a few months. The loss of 5-7 points is not enough of a detriment to avoid getting a card that might come with literally thousands of dollars in card benefits.

Your score is impacted by a variety of factors – the ones I pay most attention to are payment history, credit utilization, and length of credit history.

Payment history

Pay all bills, no matter the type or whether you think they are justified, pay them regularly, and before the due date. For credit card payments, always pay more than the minimum payment. If you do slip and miss a payment, call them immediately and beg forgiveness. If it’s the first time, they usually will remove the flag and even waive the late fee before it hits your credit report.

Credit utilization

Put simply, there is your credit limit, and there is how much of that limit you are using, with the idea being to keep the amount used to 30% or less. I’ve found conflicting information on whether credit utilization is calculated per item (keeping each card/loan to under 30%) or across your total credit portfolio (using 30% or less of all available credit across all sources). I’ve found those details not to be a massive consideration for me because my total available credit, as well as the credit on each of my cards, is so high that if I were actually to use 30%, I would never be able to pay it back, and I’d have way bigger problems to worry over. So, the overall advice here is to just maintain lots of available credit, but use little of it.

Length of credit history

Long story short, make it a point to maintain your oldest account.

Payments & Interest

There’s this idea that credit cards come with horrible interest rates and should therefore be avoided at all costs. It is true that most cards come with a terrible interest rate – mine hover around 13% – 26% depending on the card and the circumstances. However, I would argue that it doesn’t matter what the interest rate is, because if you understand the rules and act accordingly, you will never, ever need to pay it.

When you buy something on a credit card, it 1) begins accruing interest immediately, then 2) the charge posts to your next billing statement (1-30 days later), and then 3) if you do not pay the entire purchase by the due date (a few days before the next billing statement, approximately 23-28 days later), all the added-up interest shows up on your bill. I might be a bit off on the details, but the big picture here is to pay the statement balance at item 2) by the due date referenced in item 3). For a better explanation, check out this NerdWallet article. If you pay the full amount of the statement balance every month, you will not be charged interest, and can then move on to making your credit card work as a tool for you and your travel goals.

Card Benefits & Annual Fees

This is where it gets fun! All that other stuff was important, but this part is how you can really offset or eliminate the cost of a trip.

Signup bonuses

Card companies usually offer incentives to open a card. These incentives, or bonuses, can be large enough to fund most or even all of a trip. Typically, these bonuses show up in the form of a large pile of points, which are earned after you meet a set of criteria, such as spending a certain amount of money on the card within a set period of time. I usually try to coincide the opening of a new card with the payment of a large scheduled purchase. For instance, in 2013 when I opened my first travel credit card, United MileagePlus Explorer, the offer was for 50,000 United miles after spending $3,000 in the first 3 months, plus an additional 5,000 miles for adding an authorized user. I got the card in November, in December I charged the $3,500 down payment on my car and moved all other daily and holiday spend to the card, and in January I had 60,000 miles to put toward the 80,000 I needed for my March 2014 flight to/from Europe (50k bonus + 5k authorized user + 5k purchases).

Future travel investment

Everything I do, even when I’m not traveling, supports my future goals of travel. Every time I eat lunch, or pay transit fare, or pay my phone bill, etc, I accrue cash back or credit card points that can be used to pay for current bills or future trips. My everyday life is actively supporting my travel goals.

Travel benefits

Some cards also come with perks that can vastly improve your travel experience. These perks could appear in the form of free Global Entry/TSA-Pre fees, free airport lounge access, car rental insurance, free checked bags, priority boarding, access to the priority security line, free hotel nights, trip/baggage delay compensation, and even BOGO airfare. They are worth considering, and when you get a new card, it’s important to be very familiar with all the special powers you now possess so that you can maximize the hell out of them.

Annual fees

Many/most of the cards that offer great travel benefits come with an annual fee that’s automatically charged to the card. Sometimes they are waived for the first year. Annual fees typically range from $49 to $550, and present a deterrent for some. My personal view on annual fees is that they are fine, expected even, provided you get enough value out of the card benefits to justify paying it each year. I consider a normal annual fee to be $95-99. Currently, I pay about $735 in annual fees on 4 of my 6 cards. That sounds like a lot, but I reap much more than that in benefits each year, so for the moment I’ll keep the cards. I’ll summarize my specific cards below. If you can’t find enough value in the card to equal or surpass the fee, then it’s time to weigh the pros and cons of either product changing it to something with a lower or no annual fee, or closing the card entirely.

What’s in my wallet?

The table below covers the basics of the cards I have currently. This is not a comprehensive list of card benefits, just the ones I consider most relevant to my life. I’m not a hard-core credit card churner, so an important thing that I consider is whether a new card will have value beyond the bonus, since I usually plan to keep it for several years. Most of the ones in my wallet also come with no foreign transaction fees, which is key in getting good prices while trip-planning and traveling abroad.

Card	Why I got it	Annual Fee	Signup Bonus (at the time I got it)	Point/mile earnings	Perks
Amazon Prime Visa	2007: Discount on textbooks	$0	$100	5/$1 on Amazon; 2/$1 on gas, restaurants, drugstores; 1/$1 everything else	An effective 5% rebate on all things Amazon
Citi Diamond Preferred Mastercard	2011: Debt management	$0	0% interest on balance transfers for 21 months	This card might have the most pointless rewards program in the world.	n/a
United MileagePlus Explorer Visa	2013: Bonus	$95	50,000 United miles	2/$1 on United purchases; 1/$1 on everything else	2 club passes annually; expanded award access; free checked bags for me + 1 friend; priority boarding
Starwood American Express	2016: I <3 SPG; some of the most versatile points	$95	25,000 SPG points	2/$1 at Starwood & Marriott	Amex offers; elite night/stay credits; airline transfers; free Boingo wifi
Chase Sapphire Reserve Visa	2017: Bonus	$450	100,000 Ultimate Rewards (now 50,000)	3/$1 on dining & travel; 1/$1 on everything else	$300 automatic travel rebate; airport lounge access; primary rental car insurance; free Global Entry; trip & baggage delay coverage; travel medical/dental benefit
Barclaycard AA Aviator Red Mastercard	2017: Bonus; $1 minimum spend	$95	60,000 American Airlines miles	2/$1 on AA purchases; 1/$1 on everything else	free checked bags for me + 4 friends; priority boarding; 25% off in-flight purchases; 10% rebate on award redemptions; access to Reduced mileage awards

My favorites are the Sapphire Reserve and the Starwood American Express. These two offer a referral bonus, so I get more points if you decide to use my link to apply. I’m also linking to the AA Aviator Red, because the 60,000-mile bonus for a single purchase and payment of the annual fee is a limited time offer that will probably change soon.

I don’t have this one yet, but I’m seriously considering a Southwest card, due to the current promotion on offer, which grants a Companion Pass through 12/2018 (basically BOGO flights) to California residents after one purchase and the payment of the annual fee, plus an extra 40,000 points after spending $1,000 in the first 3 months.

[edit: I ended up getting this card and have included the referral link above]

For 5 months, I debated whether the Sapphire Reserve would work for me, given the $450 annual fee and the fact that I had just gotten the Starwood card. I’ve had it since January, and it is, hands down, my most lucrative card, and 100% worth the annual fee. (Shoutout to my friend Richard, who spent those 5 months casting shade and judgment and copious sideeyes upon my life until I finally gave in). Eating and traveling are probably my two top activities, and the ability to invest in future travel while doing things I would normally do is unbeatable! This card came with an initial signup bonus of 100,000 Ultimate Rewards points.

These are points from Chase that can be used for a ton of different things at various price points. Officially, 100,000 points through the Sapphire Reserve are worth $1,500 in the rewards portal. In my first 9 months with the card, I accrued the 100,000 bonus, plus about 70,000 additional points (my apartment burned down in January and I had a lot of expenses, plus this was a crazy year for traveling). So far, I’ve used about 151,000 points (officially considered to be worth $2,280) for the following:

• $128 Jetblue one-way flight
• $228 United round trip flight
• $168 Jetblue round trip flight
• $50 discount on a Hertz car rental
• $9047 Singapore Airlines one-way flight

That’s nearly $10,000 in value from a $450 annual fee and from leveraging expenses I was going to have anyway. I also got $300 back from the first $300 I spent on travel. I’ve used the lounge pass for free wine and food at least 4 different times. I got Global Entry/TSA-Pre for free, and I use the primary rental car insurance every time I rent a car. It will be a long, long time before this card stops being worth the annual fee, even discounting the signup bonus.

I’ve had the Starwood Amex for a little over a year now, and so far, I’ve combined the signup bonus with my SPG elite status and points I already had, to discount more than half the price from 2 suites at the Westin in Bali for this summer’s vacation with 5 friends. This wasn’t even the most high-value use of points, and still amounted to roughly $3600 in value, perhaps a bit more.

There are concrete benefits to using credit cards, and if you understand how to use them, you can travel for nearly free without compromising your finances.

Thanks for reading! Even though it did almost migrate out of blogdom and into bookdom.