If you’re like me, you make purchases almost exclusively with credit cards. The convenience, safety, and rewards have made credit cards highly appealing. With money transfer platforms such as Venmo and Zelle, physical cash is becoming more rare.

You’re probably bombarded with credit card advertisements and offers. Points, cash-back, perks, rewards, annual fees, interest rates — it can all become overwhelming. Which credit card should you choose? I get this question often as I go through the planning process with clients.

Let’s start with one important point about credit cards: you should not be using credit cards unless you are paying them off in full every month. If you find that your credit card balance is growing month-to-month, you need to take a closer look at your monthly spending transactions, or devise a way to increase your income. Adding liabilities to your balance sheet (increasing credit card debt) is not sustainable long-term. Ideally, you must get to a point long-term where income exceeds expenses and savings are generated. 

Maximizing Rewards 

Okay, now on to the fun stuff. Credit cards fall into two main categories: cash-back and travel. 

Cash-Back Cards

Cash-back credit cards generate a specific percentage of cash relative to your total purchase amount. The best cards offer 2% cash-back on all purchase categories and come with no annual fee. Some great 2% cash-back cards to look into: Chase Double Cash and Fidelity 2% cash back. 

Travel Cards

Your friend Johnny always brags about paying for his vacations with “points.” What’s his secret? 

Travel cards generate “points” or “miles” every time you make a purchase. When you spend on specific categories (e.g. hotels, airlines, transportation, and restaurants), the points/miles generated are often greater — in many cases they’re more valuable than 2% cash-back from a cash-back card.  

Many travel cards also come with additional travel-related perks such as: rental car insurance, luggage insurance, airport lounge access, and priority boarding.

Points can be redeemed for many items including: flights, hotels, gift cards, (and sometimes cash-back). 

Miles are more restrictive and can only be redeemed for airline purchases through the airline associated with the card. Keep this in mind before applying for an airline miles card.

Travel credit cards typically come with an annual fee ($95-$500+). To make the cost worth it, the value you receive from the card’s benefits should exceed the annual fee you pay. This is a personalized calculation based on your spending patterns. Travel cards often make more sense if you spend a considerable amount on restaurants and travel. You receive more points per dollar spent on these categories. 

There are several great travel cards including the Chase Sapphire (Preferred or Reserve) and American Express Platinum. 

If you frequently stay at a specific hotel chain, a hotel travel credit card could make sense. Marriott, Hyatt, Hilton, and IHG all partner with banks to issue travel credit cards.

Throughout the year, credit card companies will offer appealing introductory offers (e.g. bonus points) to increase sign-ups. However, these introductory offers are often only available for a limited time.

A few questions to ask: 

• Do you travel often? 
• Do you dine out (or order-in) often?  
• Would you prefer to redeem your credit card rewards for travel, or would you prefer the flexibility of cash-back? 
• What is your current credit score? Many of the best cards require excellent credit (700+ FICO score)

Using a 2% cash-back card in combination with a travel card is a common strategy. You would use the travel card on specific spending categories that generate higher rewards. For example, a travel card may generate 3 points for every dollar spent at restaurants, while only generating 1 point for spending at grocery stores. You could use the travel card for all restaurant purchases, and use your 2% cash-back card on all other spending categories. Figuring out which card to use where can be a bit tedious at first. However, you’ll quickly get the hang of it.

Advanced Strategies 

There are several websites that dive into advanced strategies for maximizing credit card rewards. One strategy involves transferring points or miles to travel partners. This can get a bit complicated and time-consuming. This is where the expertise of the following websites can help: The Points Guy and Million Mile Secrets.