The 5 minute credit card guide

Intro

In 2019, the question of “which credit card should I get” or “do I even need a credit card” has become more complicated than ever. With so many types (standard, cash back, airline, hotel, secured, business, and more) it can be daunting to choose whether credit cards make sense for you, and which cards are the best choice for you. I'll attempt to break it down for you in this snack post.

DISCLAIMER: All of my suggestions come with the caveat that you pay your card off fully every month. Keeping a balance on your card will create high interest debt and may severely damage your financial situation.

Types of rewards credit cards

All of the following card types offer options with no fees and some with annual fees. In my experience, using the cards with fees correctly can get you a higher net return, but having too many may make those fees difficult to cover.

Although there are many types of rewards credit cards, the decision can be simplified by asking yourself a few questions: 1. In which category do I spend the most (groceries, gas, travel, etc)? 2. How much do I spend on these categories each month? 3. Is my credit high enough to get a rewards card?

Secured card

If you answered no to question 3 (credit score is below ~600), you should consider a secured credit card. These require a cash deposit which serves as the credit limit, and they are generally used by people with no credit or poor credit. Fun fact: I started out with a secure credit card and upgraded to a rewards card after 1 year!

Cash Back

Cash back cards earn you points as a percentage of your purchase cost whenever you spend. They can be redeemed for statement credit, gift cards, or other forms of spending. Cash back cards are great for those who value cash over points and don’t have an affiliation with any hotel, airline, or retailer. The Citi® Double Cash Card allows you to earn 2% back on all purchases (1% on purchase, 1% when your bill is paid).

Travel

The millennial go-to. Travel cards usually offer points back as a percentage of purchase price, with varying rates. For example, the Chase Sapphire Reserve gives 3x points on dining & travel, so if you spend $10 on a meal you get 30 points, which can be redeemed for flights, hotels, and much more. This is my favorite card category as the redemption value for travel points tends to be higher than cash back.

Retailer/Brand Specific

Many retailers and brands offer their own credit cards (think Target, Macys, Amazon). These cards will generally get you higher reward values than a general card, with the downside that the points can only be redeemed by shopping with that brand. If you’re a brand loyalist or don’t mind having multiple cards this can be a great choice. I use the target REDcard and Amazon Rewards Card since each offers 5% back and I shop at both often.

Rotating Category

Perhaps the most elusive of all card types is the rotating category card. The bonus categories for these cards offer a high rate (5% or more) for a fixed period of time (usually quarterly) . For example, chase is currently offering 5% cash back at gas stations & streaming services through September with the Chase Freedom card.

There are a few other categories of cards (balance transfer, student, 0% APR that aren’t covered here, see Credit Karma: Credit Card Types to Consider for more details.

Sign up bonuses

In addition to the spending rewards, most companies offer sign up incentives that can make signing up even more enticing 💰. For example, the Chase Sapphire Reserve has a 50,000 point sign up bonus right now - which equates to $750 toward travel. These bonuses vary based on card type, company, and paid vs free cards but they are an important consideration when choosing a card.

Bottom line

Whatever your spending patterns may be, there’s probably a card out there for you. By optimizing my spending across different cards I’ve been able to take some awesome vacations that I wouldn’t have been able to otherwise. However, for some people the temptation of spending money you don’t have may outweigh the benefits of rewards. If that’s the case, stick to 💸.

Personal Finance blog by Matt Gabor
Consumable knowledge bytes to chomp on your path to wealth. All posts are under 500(-ish) words. Trying to help at least one millennial become more financially literate.