Does it make sense to optimize credit card spend, or is it a waste of time? One of the reasons why I made this post is because I recently went to dinner with a few friends and they seemed confused about optimizing spend.
My friends are happy using their debit card, cash, or a card that doesn't earn cash back, but they're looking to understand if it makes sense to upgrade to a better credit card. To analyze this, we're going to break optimization down to 5 levels: Intro, Basic, Intermediate, Advanced, and Expert.
You can veiw credit card offers by going to the "Credit Card Offers" tab. Click "Cash Back Credit Cards" and "Show More Results" until you find the card you're looking for. You don't have to use our links, but we're grateful when you do. Thank you for supporting AskSebby!
For these examples, we are going to be using a spreadsheet: http://bit.ly/2wAFev1
1. File -> Download As or Make a Copy
2. Modify the YELLOW cells
On the left-hand side, you'll see numbers that are pulled from The Bureau of Labor Statistics, feel free to modify these numbers.
Looking at the categories, we're going to focus on:
- Dining out
- Meals out
- Meals at home
- Apparel and services
- All other expenditures
- Public transportation
At the Intro level, we're going to assume you only want to get one basic card and not spend a lot of time worrying about it.
In this example, we recommend getting the Citi Double Cash card to earn 2% on all transactions. Earn 1% on the purchase and another 1% when you pay off the statement.
Based on the average spending and assuming you're going to use the Citi Double Cash card for all purchases, you'll earn an extra $382 in a year from cash back.
Important: pay off your card every month and only spend within your means. The point of cash back is defeated when it causes you to spend more than you usually would.
If you spend one-hour researching cash back at the intro level, you're effectively getting paid $382 for the hour. Even if you need to spend 5 hours researching, you're getting paid $76 to research and implement a cash back strategy.
At the basic level, we're adding two cards: the Chase AARP card and the Amex Blue Cash Everyday card, along with the Citi Double Cash card. Use the Chase AARP card for gas and dining out, and the Blue Cash Everyday for groceries.
The cards at the basic level earn statement credit or cash back only; points can't be transferred to Ultimate Rewards or Membership Reward points.
The total value you can get is $484. To apply and set up payments, it should only take ~2 hours. That means you're getting $242 cash back just for optimizing these cards.
At the intermediate level, it gets interesting because we're mixing in 5x cash back cards. The Chase Freedom and the Discover It card earn 5x on certain categories that rotate every quarter. Choose your own categories with the US Bank Cash + card.
Learning about the 5x cards is when I realized I could get a lot of value from my credit cards.
Advanced and Expert
At the advanced and expert level, we're looking to signup cards that are advantageous. Most of the spending habits are focused around hitting the minimum spend requirement to earn a signup bonus. The reason why you're getting 15% in value is that of the signup bonus.
Given that the average person spends $19,000 in a calendar year, that means you can get four annual fee credit cards and get outsized value from the bonus.
We're going to assume it takes 20 hours to learn the ins and outs of different credit cards. There is a larger time commitment because it takes time to understand everything. This comes out to be $143/hr. At the expert level, it would take 30+ hours of research, which comes out to $153/hr.
To be advanced or expert, you have to be the type of person who enjoys researching or else you'll feel like it's a waste of time.