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Only Spend About $2,000 a Month? Here’s Your Credit Card Strategy

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)

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16 Comments.

  1. This is probably not legit, but what about using square to “charge” on your cc’s and have the $ go in your spouses account, then just pay off the credit card?

    • You could do the same with paypal, I guess. You’d just be paying 2.9% w/Paypal (or 2.75% with Square). To hit a $3000 minimum spend, you’ll be paying $82.50 to Square. That’s certainly not a bad cost for 50,000 miles, but I’m not sure it’s necessary.

  2. We don’t really disagree about using your spend for meeting minimum thresholds for signup bonuses.

    Our only disagreement is over the value of Ultimate Rewards points versus cash back. And that depends how you use those points. You posit Ultimate Rewards redeemed directly for travel rather than transferred to miles. But if you’re going to use the card that way, it’s not about volume of spend, a good cash back card is goingt o beat it almost every time. Of course that isn’t how you should be using Ultimate Rewards points.

    • I do think using UR points to pay for travel (with the 25% bonus) isn’t a bad option if you are a low spender. If you’re only putting $15k a year on the card I think you’re probably better off using that for a $180 car rental than transferring the points — the 15k points won’t get you much at any transfer partner. True, you could top off to get a valuable award, but then (in year 2 at least) you’ve paid a $95 fee for those points.

      I do think we’re primarily saying the same thing. UR points are wildly valuable if you’re putting some spend on the card. It’s just that when you’re at these lower spend levels – and for most people’s travel patterns – I’m not sure it’s the best option.

      • In your post you posit 24k/year in spend but now back down to 15k, I think you’re cherry picking your examples :)

        22k points is a night at the Park Hyatt Maldives or Park Hyatt Vendome in Paris.

        And remember 24k spend or 15k spend is more points than that with bonuses and witht he annual bonus on points earning.

        But 20k points is also a shorthaul coach roundtrip, I dont usually redeem points for domestic but will redeem 10k points for a one-way IAD-YYZ which is otherwise costing ~ $400.

        And there’s also using miles for upgrades, whether international or even domestic on a transcon. Under United’s new upgrade priority someone spending miles will be ahead of a 1K waiting for their complimentary upgrade.

        The lower the spend the less value dervied, but I don’t think the comparison of points spent at 1.25 cents is the fair, right or reasonable one… it turns the argument into a bit of a straw man IMHO.

        Cheers,
        Gary

        • I went to $15k in the response because I figure this hypothetical person would have to spend a few dollars to meet min spends on other cards. But I don’t think that changes the equation.

          Sure, there are ways to get more “value” out of those points than using then at the 1.25 cents. But if you’re spending $2k a month, are you really going to the Park Hyatt Maldives for 1 night? (Because God knows you’re not paying for any nights there).

          And yes, you can get an upgrade for those points but again, for many, many, many people $400 cash is preferable to upgrading a domestic flight.

          Let’s be honest – you and I are among the lucky ones where turning down $400 or so because we want to upgrade our flight to LA is an option. For many, $400 is a windfall.

          So I’ll blame myself here for couching the discussion incorrectly: it’s just as much about your family’s cash needs as it is for anything else. If you’re in a position where that level of cash won’t make a significant difference in your life, then absolutely the travel benefits are fantastic.

          But for so many people, the cash is important/necessary. In that case, I say take the cash and have a little peace of mind.

          Also, and no one really talks about this, putting $100,000 worth of spend on a non-cash-back card basically means you’re paying $2,000 for 100,000 miles (or 200,000 miles if you’re getting double points). They’re not free miles – you’ve forgone the $2,000 (I do this too – I’m an SPG Amex guy). I think that value exchange is absolutely worth it. But those aren’t free miles, they cost $2,000.

          • Very interesting last paragraph. I had never thought about it like that. I think I would fall into the category that would prefer the $2000 cash…

  3. The back and forth between you too is great, really educational! You both make sense but would give Gary the tiebreaker :grin: Sometimes we in this hobby can beat this thing to death. It always depends on personal goals/preferences. If the redeeming makes someone happy let them enjoy the moment and move on to the next score!

    • Aw, you side with Gary on MY site? :-).

      I DO think people should get miles. The whole post was about getting 750,000 miles. We just disagree a bit on the everyday card. By all means, my point was that even low spenders can get a ton of miles.

  4. Sorry Jared, but I’ve got to side with Gary on this one too. There is no way UR points should be used directly for travel. First, points can be worth so much more when transferred. Secondly, and more importantly, there are much better cards for this purpose. The Travelocity AMEX will give a minimum 2% and up to 10% to be used in the same fashion.

    • @Isaac: I agree that UR points can be very valuable when transferred. My point is that at low levels of points (say 15k or 20k), and for someone who cares about cash, using that to pay for a $150 car rental could be a good use of the points, since 15k isn’t getting you a free flight (in most cases….yes, yes I know there are some free flights for 15k or less. you know what I’m saying). I wouldn’t pooh pooh using that money to pay for travel, especially when you have a stray 12,000 points sitting around.

      • Jared: I appreciate the response. I have no problem with either of your conclusions as that Fidelity card is an amazing card with the flexibility to choose CB or AC miles. Another key to this card for low spenders is the no annual fee. It’s hard for someone with low spend to justify credit cards with annual fees especially at the spending levels you mentioned.

        Also agree with the conclusion that for many with low spend, signup bonuses will be a vast majority of point earnings.

        I do think the argument becomes a bit more interesting if you were to replace the UR card in your examples with the Travelocity AMEX which I have long been intrigued with. If the rewards points or cashback are going to be redeemed for travel anyway, the Travelocity card may be a good choice as long as the spending level is high enough to make up for the annual fee. I ran a card comparison recently for relatives who have around $2,000/mo cc spend and this card came out as a clear winner due to the fact that most of their spend came at grocery stores or other stores for which they could buy gift cards at grocery stores, making nearly all of their spend bonused to the 4% rewards level.

        • You’re right about the Travelocity Amex, and I tend to forget about it (mostly because I tend to forget about Travelocity). But it’s a great point – for low spenders who want to redeem for travel, it’s a pretty good option.

  5. Jared, thank you for this wonderful, down to earth post. I understand that everyone does as per their situation, but to me it seems that you blogger types live in your own world. I am in a similar situation to “this hypothetical person” and I know its my perspective, but I would consider this level of spending to be “normal” or “average” perhaps.

    I completely agree with your post since it is what I do. Yes definitely get as many card bonuses as possible, but for the every day spend I will take my ~$50 a month from FIA with no annual fee thank you very much.

    Granted I dont really understand the value of UR points or other such things, but I already waste enough time just reading about getting signup bonuses and applying/doing the spend. I am very happy for my no hassle guaranteed (no blackout dates) 2% back.

  6. This post is terrific. Now that you have me thinking about it, there seems to be a lot of time I spend on trying to collect points. It is fun. But if I am doing this for value and I don’t travel frequently or know how to spend the points with skill like Gary does, is achieving the extra .33% (2%-1.67%) really worth my time?

    Of course, signing up for free points certainly is, and will continue with that. But I am unsure if inactivity on a credit card would have a negative effect of applying for more cards through that same bank, and thereby hurting my chances for getting new bonus sign ups or periodic offers, which in turn make this whole thing worth it. Hmmm…

  7. Jared I do think this post is terrific. And I think your point is an important one, that you’re foregoing cash when you accrue miles, people often forget that.

    But I think the mistake in minimizing the value of lower levels of spend accruing miles is that we don’t just accrue miles from a single source. So maybe you don’t only want to spend 1 night at the Park Hyatt Paris. But those points are earned ALONGSIDE all of the other earning through plenty of other activities.

    Maybe you only earn 20k Ultimate Rewards points from credit card spend (but maybe more, with the same spend, due to bonuses). And transfer those to United.

    And you earn United miles by flying. With car rental promos. With online shopping. And together, earning miles from lots of sources, you get some pretty high value rewards. For lower spend, credit card everyday spend is one piece of a strategy of accumulation, not the entire strategy.

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