Gary over at View from the Wing (I have the highest respect for him — he knows more about the travel & credit card world than pretty much anyone) wrote yesterday about credit card strategies for people who don’t spend that much each month.
For many-to-most people who read all of the blogs out there (including this one), you may have a feeling after reading our advice that every person in the world can easily meet the minimum spend on credit card after credit card. Obviously, that is not the case.
Gary outlines his favorite cards for people who don’t spend that much (I’ll define that as less than $2,000/month). Toward the end of the post, he says:
…they might consider using their limited spending for meeting the signup bonus minimum spending on various credit cards with big upfront bonuses.
I’m going to quibble a bit with his advice. I would suggest that if you spend less than $2k/month that you should absolutely be credit card hopping, getting a card with a large bonus, meeting the minimum, then switching cards. But you’ll still want a day-to-day card for when you aren’t trying to meet a minimum. I would suggest that low spenders are nearly always better off with a cash back card than with a travel card (gasp!!!!) Let’s look at why:
You could get the Chase Sapphire Preferred card that all of us blogger types love (legitimately, it’s great) and use that as your day-to-day card. You’ll basically get 1% back in Ultimate Rewards points (1 point per dollar spent, and each point is roughly a penny). If you use those points to pay for travel, you’ll get a 25% bonus. Plus, the card gives you a 7% bonus at the end of the year on the points you’ve earned. Sure, you’ll get 2X points on dining and travel, so let’s assume that 25% of your spending falls into those categories.
Assuming $24,000 a year in spend, you’ll earn 40,125 points* (leave aside the initial bonus) which is equal to a $401.25 rebate, or roughly a 1.67% cash back rate. Not too bad.
But there is a cash back card that earns you 2% cash back. The Fidelity Rewards American Express card earns you 2% cash back on every purchase. That $24,000 in spend would earn you $480 cash back – almost $80 more than the Sapphire card. Capital One Spark Cash Business Card also earns 2%, but there’s a $59 annual fee. If you spend $24k annually, you’d still end up ahead, but if you spend less, that $59 eats into the rebate pretty significantly. Stick with the Amex.
If you’re only spending $24k annually, you’ll actually be putting much less on your “everyday” card because you’ll be busy hitting your minimums on the signup bonus cards. Then the cashback card definitely makes more sense, since the, say, 10,000 Ultimate Rewards points you earn aren’t getting you much closer to traveling anywhere — you’d be better off with the $200 rebate from the Amex card.
A friend of mine called me a few months back in this exact situation – roughly this level of spend, hadn’t done anything with credit cards in the past. We discussed his situation, and I thought I’d share the card plan I proposed.
First, you should only be opening new cards like this if you have strong credit, don’t have a home purchase planned for the next 18-24 months and pay off your cards each month. If you don’t pay off your cards each month, do not – repeat, do not – get involved with opening and closing credit cards. Get the 2% cash back card and start saving.
Next, pick a goal. Have a trip in mind that you want to plan for and think about the airline you can use to get there. You’ll be thrilled when you reach the goal and it’ll feel like this whole game is worth it. And don’t worry if you are getting points on an airline that does not have a hub in your city. The key with redeeming frequent flyer miles is being flexible — just accept that you may need to connect. It’s a free trip, stop complaining.
My friend wanted to take his wife to Hawaii. Great. Here’s the card plan I recommended for the year. I had his wife also get the same cards. I told them to knock off the minimum spend on a card before moving on to the next one:
US Airways Premier World Mastercard
40,000 miles each after the first purchase. No minimum spend. Apply on the same day as the:
American Airlines Citi Visa
American Airlines Citi Visa Business
Each requires $2,500 in spend in 4 months and will earn you 50,000 miles. It’ll take them 4 months to knock off the spending requirements, at which time they’ll have 200,000 AA miles. Have fun in Hawaii. Remember to wait 65 days between applying for the personal and Business cards.
Hawaiian Airlines Bank of America Card
Hawaiian Airlines Bank of Hawaii Card
Each requires $1,000 in spend to earn the 35,000 mile bonus so it’ll take 2 months to spend the $4,000. Those miles can be transferred into 1 Hawaiian miles account, and then transferred out and converted to 280,000 Hilton Hhonors points. Enjoy your free hotel for the week.
OK fine, now you can get your Chase Sapphire Preferred.
It’ll take them about 3 months to hit the $6,000 minimum spend to get the 50k points each. I like that they’ll have 100,000 Ultimate Rewards points because while it can be transferred into Continental, United and others, but they could choose to use some of those points to pay for the convertible they’ll want to rent in Hawaii.
Finally, they’ve got 3 months left in the year. 1 of them can grab the Chase Business Ink Bold® Charge Card and they’ll earn 25,000 points after first purchase, then an additional 25k points after $10,000 in spend in 3 months
There ya go. With each of those churns, I might recommend they throw in another card that earns a bonus with no spend. The Southwest Airlines card (50,000 bonus points here) fits the bill if you live in a city with significant Southwest service. The Alaska Airlines card would also be good because of the flexibility of redemption partners (including Delta and American) – but the signup bonus is only 25k now. Wait til it’s 40k.
Tally it up and my friends have earned:
80,000 US Airways miles
150,000 Ultimate Rewards points
280,000 Hilton Hhonors points
200,000 American Airlines miles
50,000 Southwest points
0 to 760,000 points in a year. Plus, they can basically fly to Hawaii for free on American, US Airways, Continental or United (they could also use those Hawaiian miles on Delta to go on them if they’d prefer).
And that’s why I recommend focusing on switching cards for the bonus miles if you’re a low spender, then getting 2% cash back — you’re leaving a ton of miles on the table by not doing the work to switch.
* ($18,000 in regular spend; $6,000 in dining & travel. That $6k gets double points. 30,000 points earned, plus a 7% bonus + a 25% bonus for redeeming for travel equals 40,125).
(If you care: the two Chase cards are affiliate links. None of the other cards are affiliate links)