As a part of my general attempt to get all of my spending under serious discipline this year (not that I had a major problem in overspending but I want to get truly lean and mean for this year), I recently began taking a look at my credit card strategy for 2013. Being away from the site for the past week or so was a big impetus to give a lot of my assumptions a second thought. Long ago I had put together a spreadsheet for my credit cards, and it included the benefits, yearly fees, and due dates for each of the cards. I noticed that I had a pretty high number for the total annual fees for all of my cards.
I justified this by saying that it was good value as I was using the annual fees to maximize my points and cash back bonuses. This seemed important to me as it looked like a way to upgrade my lifestyle a bit by leveraging my daily and monthly spending into free travel and free hotel stays. For an extreme example, I though the American Express Platinum card, even with its high $450 annual fee was worth it because it gave me points to a variety of airline programs, lounge access while traveling, and a $200 annual reimbursement for incidental airline expenses. Although not all cards had quite the same extreme example, they all seemed to make sense to me in various ways.
I know think very differently about all of this. First came my post on reconsidering the value of airline miles earned via credit card spend. Don’t get me wrong, airline miles are valuable little forms of currency, but if you are traveling in coach and have a strict time in which you are in need of the flight, the numbers don’t really add up on the superiority of miles over a good cash back credit card. The main reason for this is that redemption rates are higher during peak season and that you also have to forego any miles on the trip itself, effectively meaning that the trip is costing you even more miles than those used for redemption. Frequent flyer miles are mostly a good deal when earned through (duh) frequently flying rather than credit card spending.
So if this is true, then my whole strategy of paying annual fees for valuable travel rewards credit cards also needed a serious rethink. I could nearly buy myself a pretty nice plane ticket someplace with all of the annual fees I was paying. I thought it over for a few days and decided to make some phone calls to a bunch of my credit card companies and banks to downgrade to no-fee cards. Here’s what I ended up with:
Chase Ink Bold Business Card:
I kept this card for its amazing 5x points earning power on cable and satellite TV, internet, and phone expenses. Each month I would say that I spend around $280 or so on these items, representing one of my largest spending categories in my budget. I also like that I can buy Starbucks gift cards, Amazon gift cards, and iTunes cards at OfficeMax or Office Depot where they also earn 5x points. I crunched the numbers and the additional points I earn on these categories easily offsets the $95 annual fee. Additionally, putting a lot of my monthly spending on this card allows me to avoid a service fee on my checking accounts without having to leave a bunch of money in the bank account earning little return. Finally, keeping at least one “premium” card open with Chase still gives me access to airline transfer partners. I think Chase has eclipsed American Express with their airline transfer partners since they have a strong relationship with United who does not charge crazy fuel surcharges like most of Amex’s partners.
Citibank Hilton Hhonors Reserve Card:
I actually called to cancel this card, but then reconsidered. The Gold status at Hilton is worth $95 in yearly fees to me, and I can earn an annual free weekend night certificate for putting $10,000 in spending on the card. Since this can be redeemed for a nice night out with the wife, and those 10,000 points would otherwise only be worth only $100 cash back, I think I come out ahead with this card. Even if Hilton did just dramatically devalue their award chart.
Bank of America Alaska Airlines Card:
I kept this card solely for the annual companion certificate where you can bring a companion along on any coach flight for only $110. Since my family likes to fly to Seattle and some of the cities on Alaska’s network, this is a very lucrative benefit for us. As long as this certificate is around I will keep this card.
And that’s it! Otherwise here is what I downgraded or converted my cards to:
Chase Sapphire Preferred to Chase Sapphire card:
The Sapphire earns the same 2x points on restaurants that the Preferred version of the card does. This was my biggest expense on the Preferred. It does not earn 2x on travel, but I plan on putting any travel related expenses on my Fidelity American Express Retirement Rewards which always earns 2x points that can be converted into money in my brokerage account.
American Express Starwood Preferred Guest card to the American Express Blue Cash card:
The Amex SPG is a nice card that effectively earns 1.25 points on all spending for a $65 annual fee. But those points tie me into the SPG program when I could instead shop around at different hotels or independent sites like AirBnB.com or VRBO.com. Instead of that I get cash back with the Blue Cash card and this card gives me 3x points at grocery stores, 2x points at gas stations and 2% at department stores. This is a lot more valuable to me with my current state of mind on credit cards. This cash back can be earned for a statement credit on my card, effectively allowing me to shop for travel or whatever I want and pay myself back through Amex’s method.
American Express Business Platinum Card to the American Express Business Blue card:
This wasn’t a card I was really dying to transfer to, but I generally don’t like to close accounts if I don’t have to since having more available credit improves my credit score. Amex also offered me 10,000 points after first purchase and the Blue Business card earns 1 point on all spending and a 30% bonus each year on all points earned, effectively making the return 1.3 points. Not too shabby for my business expenses.
I also outright cancelled a bunch of cards I could not trade down to cash back cards. This includes the Hawaiian Airlines card from Bank of America, the Citi American Airlines American Express card (I kept the Visa version), the Chase United Explorer Card, and Chase British Airways Visa. The Chase cards I did shift credit lines over to my Freedom and Sapphire account to keep the same credit line available, which is healthy for keeping a high credit score.
So, there you have it, a re-engineered credit card points strategy that will primarily give me solid cash back earning with no annual fees, while maintaining some flexibility with earning points that can be redeemed for travel.