The simple approach to credit cards

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Last week I made a post about how I gladly pay over $1,000 per year in credit card annual fees for cards I don’t even use. That’s because by my valuation, I get more benefits from those cards per year than the annual fees I pay. I of course try to get a retention bonus on those cards to lower those fees further, but I certainly don’t mind paying those fees if it’s the only choice.

Beyond that, I spend a lot of time focusing on which credit cards are best for which spend categories, though I think it makes sense to go back to the basics. I like having a dozen credit cards in my wallet and choosing the best card for each spend category with each transaction. And I also put a lot of spend on credit cards, much of which is reimbursable or pays for itself.

But for the average consumer it doesn’t make sense to have a dozen credit cards just to maximize value in each spend category. For example, the American Express® Premier Rewards Gold card offers triple points on airfare, double points on gas and groceries, and 15,000 bonus points when you spend $30,000 on the card in a calendar year. But the catch is that after the first year the annual fee is $175, so how many people actually come out “ahead” by maximizing spend on the card and paying the annual fee? Probably not many.

But that’s not the only reason to keep a simple wallet. The fact is that many people don’t want to deal with the hassle of keeping track of a dozen different cards. I always try to advise my parents on which cards to use for which spend category, but they can’t keep track of it for the life of them. They’re still convinced the Chase Sapphire Preferred® Card gets double points on gas while the Chase Ink Bold gets double points on groceries. Grr! So if you have a spouse or family member in the points game that doesn’t really “get it,” it probably doesn’t make sense to bombard them with a dozen cards.

That’s why I’d like to propose two “simple” approaches that I think will work for just about anyone, and will maximize benefits while minimizing annual fees. It’s worth noting that I highly recommend signing up for more cards for the sign-up bonuses (as that’s the easiest way to earn hundreds of thousands of points per year for next to nothing), but instead with this post I’m just focusing on which cards I think it makes sense for the average consumer to keep long term.

Approach one ($95 in annual fees): Chase Sapphire Preferred® Card and Chase Ink Classic® Business card

The Chase Sapphire Preferred is a card just about everyone should have. It offers double points on dining and travel, has no foreign transaction fees, and offers a 7% annual points dividend. Just about everyone spends money on eating out, though I think the “travel” category is often underestimated, as it includes things like cabs, parking, hotel, airfare, etc. I also think the annual fee of $95 is extremely reasonable, especially since it also gets you access to the Ultimate Rewards mall (which is among the most rewarding online shopping malls).

I think a really good complement to that is the Chase Ink Classic. The card has no annual fee, and most notably offers double points on gas, and 5x points at office supply stores, and on internet, cell phones, home phone, and cable.

Those are categories in which almost everyone has monthly bills, and if you’re creative with the 5x points category it’s a great way to earn bonus points as well. Office supply stores sell tons of gift cards, so there’s no reason not to take full advantage of that.

The fact that the card offers bonus points in such valuable categories without an annual fee makes it a keeper, in my opinion. Best of all, the points from both the Chase Sapphire Preferred and Chase Ink Classic can be pooled, and can be transferred to United, Hyatt, and many other programs, meaning they’re extremely flexible.

That being said, the sign-up bonuses on the Ink Bold® Business Charge Card and Ink Plus® Business Credit Card are better. After completing the minimum spend you earn 60,000 Ultimate Rewards points instead of 20,000 Ultimate Rewards points. They do have an annual fee of $95.

This is one of those cases where I’m conflicted in writing a post like this. I’d recommend getting the Ink Bold and Ink Plus since the sign up bonuses are better and there’s no annual fee the first year, but if the goal is to minimize the long term value of the card, I think the Chase Ink Classic is better. That being said, you can always apply for both (or all three) to earn the bonuses. Or get the Ink Bold, keep it for a year, then cancel. Then do the same with the Ink Plus. And then lastly get the Chase Ink Classic and keep it open.

I value Ultimate Rewards points at 1.9 cents each, so by my valuation you’d be getting the following return on spend using this strategy:

Office supply stores, internet, cell phones, home phone, and cable: 9.5% (5x points)
Dining and travel: 4.07% (double points plus the 7% annual dividend)
Gas: 3.8% (double points)
Everyday spend: 2.03% (7% annual dividend)

Approach two ($160 in annual fees): Chase Sapphire Preferred® Card and Starwood Preferred Guest® Credit Card from American Express

If the above strategy was too complicated for you (or those important in your life), it doesn’t get much easier than this.

I still recommend the Chase Sapphire Preferred for the reasons stated above (double points on dining and travel plus the 7% annual points dividend), though instead I’d complement it with the Starwood American Express.

The Starwood American Express doesn’t have any bonus categories aside from Starwood hotels, but it accrues Starpoints, which are among the most valuable points currencies out there. I value Starpoints at 2.2 cents each.

So if you put your dining and travel spend on the Chase Sapphire Preferred and other spend on the Starwood American Express, I’d say you’re pretty well positioned in terms of your return on everyday spend and also your diversification of points.

Starpoints can efficiently be used for stays at Starwood hotels and can be transferred to airline miles at a 1:1 ratio, with a 5,000 point bonus for every 20,000 points transferred.

By my valuation you’d be getting the following return on spend using this strategy:

Dining and travel: 4.07% (double points plus the 7% annual dividend)
Everyday spend: 2.2%

Other card complements

There are a couple of other no annual fee cards that can be added to a card portfolio to even further maximize return. Again, I think the above does a good job of maximizing return while keeping things simple, though if you want to do even better…

The Chase Freedom® offers 5x points in rotating categories, with a cap of $1,500 of spend per quarter. That’s an easy 7,500 Ultimate Rewards points per quarter, which can be combined with Chase Sapphire Preferred and Chase Ink Classic/Bold/Plus points.

The American Express Hilton card offers 6x points at drugstores, gas stations, and supermarkets, and gives you access to Hilton AXON awards. If you spend a substantial amount of money in those categories, that can be a good return as well, especially for a no annual fee card. Just keep in mind that Hilton points aren’t as valuable as Ultimate Rewards points or Starpoints.

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  1. This is great advice and I am in the “approach 2” bucket. I would just suggest adding an airline card (for your preferred airline) to this approach. I prefer United and carry their United Mileage Explorer card for the benefits of earlier boarding and free Checked baggage. It also doesn’t hurt that Chase transfers to them. I know Citi’s AA cards offer similar benefits if American Airlines is your choice of airlines

  2. I have the Chase Sapphire card that I use regularly, but also have my credit unions cash back card (1%). Its hard to break away from that because at the end of the year I usually have $800-$1000 cash that I can use to fund the necessary mileage runs or matress runs to lock in status. Just trying to think through funding those outside of the cash back and if the points would put me ahead. Thoughts?

  3. This is how I have my wife approach it.

    Card 1 – AMEX BCP = Groceries/Gas (6%/3%)
    Card 2 – Citi Forward = dining/bookstores (5x)
    Card 3 – Whatever card we are working off min spend on = everything else.

    I just got the Brit Air card, so that will probably be in her wallet most of the year as card #3. I am also careful not to give her too much trouble if she uses the wrong one. Marital bliss is worth more than a category multiplier.

    My wallet is more like that of a OCD serial killer, which is about right as I manage all the category multipliers and knock off various smaller min spend requirements to capture the bonuses.

  4. If I have the Chase Ink Plus, and then it’s coming to the end of the first year and the annual fee will come due, can I downgrade to the “classic” version so that I can keep earning rewards (and pool with Sapphire Preferred) but without the fee?

  5. BTW, a great post. And I appreciate Dave’s comment above. I try to keep just one card in my wife’s wallet so she doesn’t get frustrated with me–yes, marital bliss is key. I swap from time to time based on min spends or bonus categories. Fun times!

  6. Anyone have any luck with getting a retention bonus with Amex or getting them to waive the annual fee? Advice on how to go about either of those?


  7. Cards to keep, but rarely use:

    Chase United Airlines card gives you primary coverage on rental cars. You do not have to buy expensive rental car coverage, and if you have a claim they cover it, not your own insurance company. They even covered my UHaul truck rental some months ago.

    Chase Priority card gives you a free night at any IHG hotel, including Crowne Plaza and Intercontinental, and the certificate is valid for a full year. Easily worth the $49 fee. Two low cost nights are even more convenient if your spouse has the card too.

    Possibly the Chase Marriott card, pricey at $89, with a free night certificate good for category 5s. But only valid for 6 months after card renewal, so if you will want to use that for a certain time of year, be careful when you apply. Chase will not allow you to change your renewal date, it stays at the day you were approved forever.

  8. I’m suspicious of paying an additional annual fee just for a slightly better earn rate on non-bonused spend. At your valuations, it would take $21,667 in spending on the Starwood Amex to break even on the additional annual fee as compared to just putting everything on the CSP. The Amex is an attractive card, but to me it only makes sense to pay for both it and CSP if you have a decent chunk of Starwood spend or high total spend.

  9. I’m pretty much in line with Dave – I’m perfectly happy with getting as complicated as possible and enjoy the game of keeping track of category multipliers, minimum spends, promotions, etc. – but for the sake of keeping my wife both tolerant of miles/points and tolerant of me, I’ll generally ask her to use one or at most two cards at any given time. For instance, right now it’s Hilton Amex (no fee) for gas, groceries and drugstores (I also set up cell phone and cable/internet), and then Chase Freedom for everything else. I’ll take care of all the more nuanced stuff while she racks up bonus Hilton points and tons of UR points while hardly giving it a second thought.

  10. @Joe,

    Lucky is right in his calculations. 2X for dining + 7% annual bonus = 2.14

    2.14 X 1.9 (value Lucky assigns to UR points) = 4.066

    Happy Holidays!

  11. Hi Lucky,

    This is unrelated but figured I’d ask for your help.

    I just booked a last minute fare to Brazil on DL. Although it was a great deal, I’m not too thriled about the Delta miles I’ll be getting since I hear they are very hard to be redeemed. I was wondering where I should credit those. Do you have any suggestions? Maybe Alaska?

    Thanks for your help!

  12. This made everything so clear. I knew one card by itself wouldn’t be enough to really get in the game, but the myriad of options was confusing. Thanks a lot.

  13. Any way to downgrade the Chase Ink Bold to the no fee Chase Ink Classic when the IB fee is due? That’d save the hassle of canceling and applying for another. Let us know!

  14. For my wife and I, we primarily use these three cards:

    1) Amex Hilton HHonors for groceries, drugstores, and gas
    2) Chase Freedom for everything else that is less than $10
    3) Chase Sapphire Preferred for everything else that is more than $10

  15. @ Paul — Cash back is always tempting, though I think by any reasonable estimation Ultimate Rewards points or Starpoints are worth more than a cent a piece. Think of it this way — 140,000 United miles (transferred from Ultimate Rewards) gets you a first class ticket to Asia via Europe, with a stopover there. Do you value that at more than $1,400?

    If nothing else Ultimate Rewards points can be redeemed for travel at the rate of 1.25 cents per point, so you’d come out ahead that way as well.

  16. @ Spencer W. — People have inconsistent experiences with that. In the past it was easy to downgrade credit cards, though with new banking regulations it’s not so easy anymore. That being said, why downgrade when you can cancel the card and apply for the Chase Ink Classic and earn the sign-up bonus on that as well? Keep in mind that Chase will almost always let you swap out cards, so if you’re willing to close your existing Chase Ink Plus they’d almost certainly approve the Chase Ink Classic.

  17. @ Joe — Was using a valuation of 1.9 cents per point, so I believe my math is right.

    @ JR — While experiences vary based on how much spend you put on their cards, how many of their cards you have, etc., they are in my experience pretty good about retention bonuses. I usually just call to cancel and explain that I’m getting better value on another card, and it’s usually automatically offered.

  18. @ Acs — Delta isn’t bad for redeeming on some of their partner airlines, like Virgin Australia, Air Tahiti Nui, China Southern, etc. What are your long term travel goals, and how many miles do you plan on crediting to them over the coming years? If it’s just one trip I’d probably still credit to Delta.

  19. @ Marcus — Happy to hear, thanks!

    @ James — In most cases I don’t believe it’s possible to downgrade cards anymore (though it is possible to upgrade them). That being said, what hassle? You can get more bonus points by applying for a new card, and Chase is great about closing existing cards in favor of new ones. 😀

  20. @Number1 – Why stop with the Freedom card at $10? I’ll assume you get the +10 point bonus, but do you get the +10%, too, for Chase exclusives? Even with just the +10 points extra per transaction, the Freedom card is the better to use on any purchase for which the CSP doesn’t offer a bonuse.

    Our math includes the United card at 1.4UR points per mile, as we count on getting the 10k point bonus per year (used to be a bonus each, but other cards are getting in the way of that now!). At 1.4x, the Freedom card still makes more sense up until $33 or some such. For normal spend, the Freedom card would be my first choice otherwise. I’m contemplating the fate of my CSP card (as I now also have an Ink card).

  21. I want want to go Bold one year, Plus the next year, then Classic after that, is it better to close the Bold first before applying to the Plus? Or apply first?

  22. @ Antonio — I’d recommend applying first and then canceling the previous card. That’s because the reconsideration line will almost always let you open a new card in favor of an old one.

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