I love me some credit card rewards. Ever since I got involved in the credit card game, I haven’t looked back. I honestly can’t think of any other investment that offers a better risk/reward ratio than credit card rewards.
The primary downside risk is if you don’t pay your credit card statement in full every month. And this is completely in your own control! To make this strategy pay off, the main ingredient is discipline. The discipline to pay all statements in full, to optimize every purchase and redemption, and to timely apply for/cancel cards.
With a little time and monetary investment, you can easily get thousands of dollars in value each year. In 2017, we successfully redeemed $3,778.77 of value from our credit card rewards. Not too shabby! Especially when you remember this dollar value is after-tax. If you think about it in terms of salary, that’s like giving yourself a $5K raise!
Let’s get into the details where I break down each rewards program we used, how much value we received from each, and the associated credit cards.
Southwest Rapid Rewards (+1,790.68)
Southwest is my favorite airline for domestic travel because of its low cost, superior rewards program, and flight flexibility. On top of all that, it also has the holy grail of credit card rewards — the Southwest Companion Pass, which allows a designated companion to fly free (except for mandatory taxes/fees) with you on any flight. This means you basically get two flights for the price of one!
I earned the Southwest Companion Pass at the beginning of 2016, making it good for 2016 and 2017. We made the absolute most of the Companion Pass in 2016 taking 42 flights for $252. Last year, we didn’t have to take anywhere near as many flights because we relocated back from FL to the MD/DC area (where most of our friends and family are). It makes it a lot easier and cheaper when you don’t have take a flight for every event/holiday.
But when we did fly, we took advantage of our Southwest Rapid Rewards to pay for all our flights. Altogether, we took 14 individual flights (1/3 as many from the previous year) with a net value of $1,790.68. Net value means the value received above any cost paid (the mandatory fees).
The sad thing is our Southwest Companion Pass expired at the end of 2017. But it certainly paid dividends while living in FL. On the positive side, taking less flights will offset the cost of using points for both of us rather than just one. We don’t use the Southwest Rapid Rewards credit cards to earn points on everyday spending. We use the Chase Ultimate Rewards cards since they have better rewards rates on spending and then transfer points as needed to Southwest.
World of Hyatt ($1,479.00)
Just like Southwest, Hyatt is a transfer partner of Chase Ultimate Rewards and provides solid value in terms of cents/point. As a result, it has become our go-to hotel choice. With the Hyatt credit card, you get 1 free night at any Category 1-4 property with each anniversary. Of course, each anniversary also means an annual fee, so you’re effectively paying $75 for that one stay. It pays to get the maximum value out of that night which is what we did by using it at the Hyatt Centric South Beach Miami (a $459 value). Here is a list of the 10 best hotels to use your Free Anniversary Night Certificate. Since it’s easy for the Hyatt credit card to provide value year after year, it’s one of the few annual fee cards I recommend keeping long-term.
Besides that, we used 3 nights at the Hyatt Centric Magnificent Mile in Chicago for a wedding/vacation, which we paid for entirely with points. We received $1,020 in value for the 3 nights — crazy how expensive hotels are. Just like Southwest points above, these Hyatt points were earned using the Chase Ultimate Rewards credit cards and then transferred to Hyatt when we needed them. Keeping the points as Ultimate Rewards until you’ve determined how to use them gives you maximum flexibility. No point transferring everything immediately to Southwest and then be stuck when you need a hotel!
American Express ($335.00)
With the Blue Cash Preferred, you earn 6% cash back on all grocery purchases up to maximum of $6,000 per year. If you max out that spending, you can earn $360 in cash back each year. But you pay a price of $95 for that privilege due to the annual fee (increased from $75 when I first got it). Our annual grocery spending was over $6K last year, but as you can see we didn’t max out the $360 cash back.
The Chase Freedom credit card usually has 1 quarter of the year where you get 5X points on groceries. Since that earns Chase Ultimate Rewards points where typical redemption value is at least 1.5 cents/point, it makes more sense to use that than earn the 6% straight cash back from the Blue Cash Preferred. As a result, our grocery spending on this card didn’t quite hit the $6K threshold but was close. This is a case where NOT hitting that threshold is a win. If we hit $6K in grocery spending in 3 quarters, that means we went over budget! Our budget is $600/month, which comes to $5,400 annually — right on par with the value we redeemed last year.
Bank of America ($120.00)
Card: Bank of America Better Balance Rewards (Discontinued)
This card is easy money in the bank. Unfortunately, Bank of America discontinued it last year so no one can apply for it anymore. I haven’t heard anything yet about current cardholders being forced to convert to another card, but most likely that’ll happen at some point. I think the discontinuation shows that the card was simply too good for BOA to offer. You get $25 every quarter if use the card at least once each month and pay at least the minimum balance each month. For BOA customers, it’s $30 per quarter in cash back instead of $25. Since the card has no annual fee, that’s a FREE $120 every year.
I set up a small monthly recurring payment and pay it off every month. I don’t even have to ever put the card in my wallet. In the end, I get an easy $30 every quarter for a minute or two of work!
I applied for the Amazon credit card when I went on a credit card application frenzy a few years ago. That was before the Chase 5/24 rule existed. I’m not sure I would apply for it today but it has no annual fee so and provides a little bit of value, so I keep it around. It provides 3% cash back on Amazon purchases (and now Whole Foods as well), which is a little bit better value than if I used the Chase Freedom card.
If you make a lot of Amazon purchases, this card could really be worthwhile. Especially if you have a Prime membership which increases the cash back to 5%.
Card: Discover it
This card is similar to the Chase Freedom credit card with rotating categories that earn 5X spending. However, the Discover it card is straight 5% cash back while the Chase Freedom is 5X Ultimate Rewards, which is vastly superior. The categories often overlap with the Freedom or the Blue Cash Preferred for groceries which means it typically is playing second or even third fiddle. But like the Amazon card, it has no annual fee and squeaks out a little bit of value for us. It seems to be most beneficial for the reason that we both can’t carry the optimal card in our wallet at the same time, so this gets used by the person who spends less in that category.
Technically, this doesn’t count as credit card rewards but I’m still going to count it anyway. I use shopping portals on every purchase possible to earn more credit card rewards. Here’s how you can easily find the best shopping portal. By using Ebates in lieu of another shopping portal, it means missing out on those additional rewards from the credit card rewards programs.
Here is a breakdown of all the credit cards rewards we redeemed in 2017:
After accounting for annual fees, we received $3,151.77 of net value!
Even though $627 looks like a lot to spend on annual fees, the return that investment provided was a gain of over 500%! Like I said at the beginning I can’t think of any investment which provides a better return with such little downside. Certain credit cards have annual fees but you should already know going in whether the card will return more in value than the cost.
The crazy thing is that this was actually a down year for us. In 2016, we actually got over $13K in rewards. The majority of credit card rewards comes in the form of travel and we traveled significantly more in 2016 than 2017. I would expect us to average about $5,000 – $7,000 per year (for two people).