Optimize Your Credit Cards

Optimize Your Banking with Credit Cards

I use credit cards wisely. We haven’t discussed them on this show, except in Episode 117 on Credit Scores.

Let me give some caveats. Here are some truths about credit cards.

Credit Card Caveats

People who carry a balance shouldn’t use them. Period.

If you carry a balance from one statement to the next and pay interest at 20-30%, that’s stupid. You should not have or use credit cards to buy more than you can afford.

People who are anti-debt and credit cards can stay that way.

If you’re a ravenous Ramsey fan or a miserly Mr. Money Mustache devotee, then stay that way! If it’s working for you, keep doing it. I’m not trying to convince anyone financially successful without credit cards to start using them. Why?

No one got rich off of credit card rewards.

Again, these strategies are the sprinkles on top of the icing on top of the cake. Stop focusing on this if you haven’t done the rest.

Most people spend more with credit cards than with cash.

They’ve done the studies. I’m pretty sure it’s been proven that people spend more with credit than cash. As an expert YNAB user myself, I’m the opposite. Credit and debit transactions can be tracked, and cash is much harder. I lose track of cash transactions, but there is a paper trail with my credit purchases. So I spend less. But I also keep my budget updated weekly, so you can’t claim this if you don’t.

Having a bunch of credit cards and continually opening new ones is damaging to your credit score and financial life.

People open a new credit card to save 10% on their one-time department store purchase. With it, they drop their credit score by 50 points and increase their mortgage rate on their 30-year mortgage. They save $16 at The Gap and pay $16,000 extra on the mortgage.

Dumb, dumb, dumb. Don’t trip over hundreds to pick up pennies!

Okay, on to the positives.

Current Credit Cards

I have three credit cards. All of them are set to pay the full statement balance at the due date automatically. I track the transactions when they happen, not when the card is paid.

Chase Amazon Rewards – 5% Cash Back at Amazon.com

I recently canceled Amazon Prime. It was part of a “cancel all subscriptions to see which ones I use” strategy. It lasted all of six days before I renewed it. We do a decent amount of shopping on Amazon, so getting the 5% is worth it. We don’t use it anywhere else.

Capital One Walmart Rewards – 5% Cash Back at Walmart.com and Walmart Pickup

We use Walmart Pickup for our groceries all the time. With how expensive groceries and household items are, we want them at low cost. And with a two- and four-year-old, we don’t want to go into the store. So, we run about $1,000 a month through this card. We don’t use it anywhere else.

Capital One Quicksilver – 1.5% Cash Back on Everything Else

All our other transactions go on this card. By “all,” I mean all transactions that can be put on a card go on this card. Utilities, the mortgage, and a few other bills can only be paid by ACH. But everything else goes on this card. We don’t do debit transactions at all.

Credit Card Strategies

Why do we do this? For a couple of reasons.

Optimize Credit Card Points

Note, I didn’t say to “maximize” points. If we wanted to do that, we would open a credit card at every retailer to save 5% wherever we went. But that would be detrimental to other aspects of our finances, so we don’t do that. We optimize points; we don’t maximize them.

Let’s say you have a card with 1% cash back on all purchases. A retailer offers you their card, giving you 5% cash back. That’s a 4% increase. Let’s say you typically spend $60 a month at that retailer. Your extra 4% cash back amounts to… drumroll, please… $2.40.

Saving a few bucks a month is a dumb reason to sabotage your credit score for things like a mortgage. And the extra hassle of trying to manage another card cannot be worth the single-digit dollars.

It is not worth getting a 5% cash-back card for a particular retailer unless you spend $500 or more monthly. That’s why the only two I have are for Walmart and Amazon.

We (mostly my wife) also shop at Target sometimes. But there, we can get 5% off with their RedCard debit card—all the savings without another line of credit.

Optimize Credit Card Float

Credit Card Float is the time between when you run the transaction and when it is paid. Using this can be an advantage. Let’s look at why.

Suppose your credit card cycle runs from the 1st to the last of the month, and the payment is due on the 20th. If you buy something on the 1st of April, you are floating that transaction for 50 days. You buy it on the 1st of April, and that payment to the card is made on the 20th of May, fifty days later. If you buy something on the 30th of April, you still get to float that transaction for 20 days.

Thus, all transactions on a credit card float for anywhere from 20-50 days.

Why does this matter? It helps us to optimize our savings, which we’ll cover next.

Conclusion

Don’t use credit cards if you carry a balance. Don’t worry about doing this if you haven’t done your real financial planning. (There’s a reason I’m waiting to talk about it until 150+ episodes in.) But if you’re doing everything else right, optimizing (not maximizing) your credit cards can generate significant points.

We earn $50-$100/m on credit card cash back without paying a dime in interest. That’s an extra date night a month, which is important to us. Being intentional with your credit cards and the rewards you get from them can lead to a bit more fulfillment in life. But using them frivolously can lead to disaster.

Optimizing your spending through credit cards is handy. But the real power comes in combining that with savings.

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.