16 – Credit Card Selection Process

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Episode Overview:

In today’s episode, Ken answers many of the common questions that come with selecting your credit card. Which credit card is right for you? How do you leverage rewards? Are annual fees ever a good idea? Travel points or cashback? Ken shares what credit card strategies provide the most bang for your buck. It is imperative to find that credit card that doesn’t consume or impede on your lifestyle. This episode will help you find that credit card.

Transcriptions are auto-generated, please excuse grammar/spelling!

Happy Day to you. This is Ken Kaufman and I am thrilled you’re here for Episode Number 16: the Credit Card Selection Process. So, in the last episode and a couple of episodes before that I’ve been spending some time diving into different concepts around the use of credit cards. I’m a fan of it, (as long as it’s done responsibly; I’ll give a quick reminder on that here in a second.)

But picking the right one is critical to make sure that you’re maximizing or getting the most out of this process. So let me start with this. First, we have to be a responsible credit card user. There’s no reason to go and get credit cards for the sake of getting them and racking up debt that hurts our net worth. We need to have the discipline–as I mentioned–to watch that credit card float and avoid it and avoid its negative impact on our net worth by setting cash aside to pay off our credit card as we make those purchases in our budget, or if you need a separate account to do that, great, do that.

I have had lots of different credit cards in my life. I have tried different schemes of racking up points for travel, cashback, the rotating where you get more cashback or more rewards based on if you use it for groceries in this quarter or in gas this quarter. I’ve had some where I get really high all-the-time rewards on gas but then it’s much lower on other types of purchases or where it ratchets down– you get 5% back on this certain category of purchases and then 3% and 2% and 1% and then sometimes zero percent. I’ve tried all different types of credit cards. And this is what I’ve settled on in terms of what I feel like is the best and where I feel like I get the most bang for my buck for the mind share that I’m willing to put into it versus using that mind share so I can go be present with my family, with my professional responsibilities, with my church responsibilities or any anything else where I do that, because realizing, if we’re soaking up bandwidth to have some really illustrious complicated credit card strategy, it means we’re potentially taking it away from somewhere else. So I’ve come to where I feel like the right balance is between feeling like I’m really getting the bang for the buck on the effort that I’m putting in and making sure that it doesn’t consume my life, or at least impede in areas of my life that are important to me and I don’t want to hurt and I want to be present for.

So here’s the first one. I just have not found the right card, ever, that has an annual fee. There’s something conceptually that’s wrong about having an annual fee on a credit card. I just will not sign up or use a credit card that has an annual fee. I have done it, and in some instances, I’m sure there are some listeners that even have an annual fee on a credit card and can show us and justify so clearly why financially it’s worth doing that. The main point or the main issue that I found is, you have to be such a high user of that credit card, that often it excludes many people from it really making sense to have any type of a fee. So I’ve just found for me, I don’t like a credit card and I won’t sign up for it unless there is no annual fee.

I’ve also decided to simplify down in my life. I know there are people that have 20 or 30 credit card accounts open. They are signing up for the initial introductory rewards or benefits or, you know, zero percent transfers and all of those things. And then they’re moving to the next and moving to the next as they’re maximizing all of those things. And now they’ve got this huge myriad of credit cards. That’s not my game. I played it a little bit at one time, but I don’t think I ever got above five or six cards total. I know there are people that run a much more complicated structure and scheme around that, and sounds like from what I’ve heard, some of them have been pretty successful with it. Not–I just don’t have a passion for that, I don’t have the bandwidth that I want to dedicate to that; I’d much rather dedicate it to other activities,–I think the benefit is minimal to doing it. So the way that we take this on is we have a credit card for our personal use, and I have a credit card for business use and also it’s not necessarily only in the name of the business, (as having been self employed and having kind of side hustlers and things through my career in my professional life.) It’s just another credit card in my name on my social security number. And so we do use that as a backup card as well. My wife has one of those as well as I do. I think it’s under my name, she’s an authorized user or something like that. And then it’s the same on the one that we use primarily. But the second one that right now I just use for business expenses and so it’s clean and easy way for taxes and to keep track of all of that.

That’s also a backup, so that if our existing card for some reason, we can’t use it, then we’ve got that backup card ready to go. And this has happened a few times in the last probably 18 to 24 months, three different times. Our credit card has been compromised. And somebody’s gotten it been cloning that number in places where we weren’t. And so I believe it’s been three different occasions where we’ve had to switch out to a new credit card number.

Our issuer has been fantastic, by the way. So the main one that we use, it’s with City Bank. And it’s called the City Double Cash card. And I’ll jump into why I’ve gone that route in a minute. But they’ve been fantastic to work with, I found it’s been a really clean seamless. We let them know about the issue, they very quickly act. In one of the instances they caught it before I saw it or caught it and notified me and we were able to get that transaction canceled, they canceled the card, they issued a new one immediately, they shipped it out. But what was awesome is they gave me access online to what the credit card number was, and what the expiration date was and the CV code so that I was able to not miss a beat and start using that new credit card and then the statements just merged together beautifully. Anyway, I’ve been impressed with their service and with the way they’ve taken care of us through some of those things. But when you don’t have a credit card and in one case my wife and I for our 20th anniversary, we were traveling between London and Paris for about a week, just visiting and just enjoying each other and enjoying being in that part of the world. And the credit card was compromised, I was able to pull that second one out and just keep going and not miss a beat.

So we have two credit cards. And that’s it. I have pushed those limits up, meaning I’ve asked for more so that, you know, if you jump back to the last episode about credit card utilization, the balance utilization so that our credit score is maximized at least as best as it possibly can be when that formula is run by the credit reporting agencies. And so I’ve got those two. So the first one is the City Double Cash card is my preference is cashback on rewards. I’ve done the travel rewards and all of these other points that you can use on all of these, you know for all these different potential purchases and in my mind every time I’ve run the math and gone through, you know, the effort and everything that goes with it, I find that the cashback is actually the most valuable because whether it’s blackout dates, trying to get travel done–and I’ve a big family, and I’ve just found maybe those things work and those types of rewards and benefits of travel and points and those things, maybe it works for people who are single or have smaller families. It’s so complicated to then get into the right place and somewhere that fits my family and everything is going to work out–I just have found that I haven’t been able to get the benefit out of those as with cashback and usually when I look at the cash that comes back versus what all those points gets me the cashback seems to be worth more, and I could go spend the cashback and create a better benefit for myself than whatever those points and other rewards could get me. So I stick with the philosophy of I go with the cards that have no annual fee, they give cash back and I’m looking for the ones that give the highest amount of cash back. The City Double Cash works this way; they give you when you make a purchase 1% cash back, and then when you pay for it, and you pay it off, another 1%. So if you jump back to my last episode about maximizing your credit score by paying off your balance right before the end of the statement cycle, this works beautifully.

Because I’m getting on each statement cycle the full 2% cashback; because in that statement cycle, I’ve got all those purchases that I’ve made that I get 1% for and I also pay it off, pay off all those purchases right before the statement cycle ends. So I’m getting that 2% cash at each statement cycle cashback. So, hopefully that gives you a little bit of a taste.

The other credit card that we use for business, it’s a 1.5% cashback card, and it’s just straight up as soon as the purchase is made. And those, you know, both instances, that dollar amount of cruise and I can select anytime that I want to get that back–if I can get it in the form of gift cards, statement credit, or a direct deposit to my bank account, I’ve just always preferred getting the money deposited right into my bank account, so I can see it come in, I can track it. And at the end of every year, I can look and see ‘Hey, what are the cashback benefits here’ and again by driving as many of my credit card purchases into the credit card or buy all my purchases doing as many of them on the credit card as possible. It’s been a huge benefit because I’ve seen some years where I’ve collected, I think, well over two or $3,000 in cash back rewards and benefits.

So I think I forgot to mention, the second credit card I have, it’s through Capital One. I used to be a really big proponent and user of the Capital and 360 bank accounts; I’ve moved from that. I’ll do an episode on that in the future, but I’ve held on to that credit card; I had 1.5% business purchases and also as our backup credit card. And that simplifies my life. So I have two credit cards I’m managing.

I have two statements cycle dates that I’m tracking and the day before I’m paying off balances, as we’ve talked about in the prior episodes, and I am getting cash deposited into my bank account every month from both of them for the rewards that I’ve earned.

So there it is, the Credit Card Selection Process. I’ve gone through this and you may find that you are not of the same mindset as me. You want to go down the road and have annual fees because you feel like you can justify that (rewards or benefits,) or you can get credit, if you can figure out how to make that work for you knock yourself out, go for it. You may want to have not just two credit cards like I do, and my wife, you may want to go for 10 or 15 or 20. Knock yourself out. It’ll take a lot of time, effort and just managing and staying on top of that structure. But if you get yourself set up and structured the right way, it’s totally possible to do and by all means go for it. And then I believe that cashback, I just feel like over the years, that’s where I’ve gotten the biggest bang for my buck. Oh, and one thing I’ll mention, some of these rewards cards, cashback and others, they rotate categories, well, this is where they’ll say, hey, in this category, you get 4% cashback for all your grocery purchases, and then a lower tier for other types of purchases. And they have this quarterly process where there’s a new thing that gets the highest amount of cash back. I have just never, again, seen the benefit of that. I think it looks great on paper, we get really excited about ‘I want that four or 5% cashback, that’s so fantastic.’ But they usually are categories that are so small relative to where your total credit card spend is. NET NET, I found getting 2% cashback off of this City Double Cash card has been the best bang for my buck. And again, I’m not trying to remember “wait now which card do I use? Where? And how do I make sure to get the most over here and then the most over there?”
So net net, I think it’s, I’ve simplified it down, figured out what works best for me. You’ll need to figure out what works best for you. But in the meantime, feel free to follow my process. It’s worked very well. And again, I’ve got 25 years of being a credit card holder, and kind of going through all this process and learning and trying and this is just where I’ve settled in where the biggest bang for my buck is, minimizing mindshare and complexity.

So we still have several more episodes coming on credit cards. Want to make sure you subscribe to the podcast. In a couple of episodes, I will be jumping into how to get kids into the credit card game. Teach them how to manage the float as well as you leverage that credit card to help them get a credit score as soon as possible–a good credit score so that they can set themselves up for success when they do need to borrow as they’re getting their lives started out–college, marriage, needing to eventually purchase a home and those kind of things. Many, many thanks to you for joining today. This is a wrap for Episode Episode 16. Happy day.

Transcribed by https://otter.ai

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Join Chief Financial Officer Ken Kaufman as he helps you track and hack your net worth. For those seeking financial independence, your net worth is one of the most significant measurements of success. Using his two decades of financial experience, Ken Kaufman helps you overcome your financial obstacles and look onward towards a better, brighter financial future.

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