There is a lot written about credit cards that earn miles and points.  In fact, probably too much to digest in one reading.  This course will lay out the basics and stick to those until you are sure that you have it down thorugh months of experience.  The last thing that you want to do is get in trouble with credit cards.  You should see all the Soldiers that I have to chase down to pay thier damn Government Travel Card (GTC)!

First of all, and most importantly, only get a miles or points card if you will PAY OFF THE BALANCE EACH MONTH.  With the very high interest charges on these cards, it is never worth the miles or points to pay the monthly finance charge.  Period, end of story.  If you are not in that financial position, then just don’t do it, you can still get plenty of points or miles other ways.

Provided you pass the first rule above, rule two is GET A CREDIT CARD.  Get two or three.  Note that I did not say two or three dozen.  Analyze the type of credit cards available to you, primarily the ones associated with your selected airline and hotel programs.  Try to always use the same credit card that is associated with the company you are purchasing from due to the bonus miles/ points received.  Look for the following characteristics for each card:

– Is there a yearly fee?

– What benefits besides earning points or miles does it offer?

– Is there a yearly bonus for holding this card?

Let’s start with the first question.  The fact that there is a yearly fee is not necessarily a bad thing.  If there is a yearly fee, it typically means that there is a benefit associated with paying that fee.  The benefit usually outweighs the cost of the card by 2-5 time the cost of the fee.  However, that only applies if you actually use the special benefit for that card.

Let’s take a look at an example:  Marriott has two versions of the card put out by Chase.

The Marriott Rewards Visa Signature card has a yearly fee of $45, gives 3 points for each dollar spent at Marriott and 1 point for every other dollar, gives you 10 nights towards gaining status, and currently comes with a 30,000 point sign-up bonus as long as you spend $1000 in the first 3 months.

The Marriott Rewards Premier Visa Signature Card has a higher yearly fee of $85, gives 5 points for every dollar spent at Marriott, 2 points for every dollar spent on airlines and car rentals, and 1 point per dollar everywhere else, gives you 15 nights towards elite status, a free night hotel stay at a Catergory 1-4 Marriott, and 50,000 points for $1000 spend in the first three months.

So for an extra $40 a year, you get 2 extra points at Marriotts, 1 extra point on airlines/ car rentals, 5 extra nights towards status, and most importantly, a free night hotel stay.  Even if you did not count anything else, the free night hotel stay is worth more than $40 just by itself.  In fact the free night is probably worth the $85 yearly fee just by itself and you can consider everything else a bonus.  If you collect Marriott points, getting this card seems like a no brainer, right?  note that I did not discuss the amount of sign up points.  This is a one time thing so beware of using this in your comparison.  There is an advanced strategy for collecting miles and points from just sign up bonuses, but we’ll discuss that in the Advance Course.

Note that I do not get anything financial if you sign up for either of these cards.

Next, let’s discuss Question Number Two – benefits.  For this I will use another Chase card, the United MileagePlus Explorer card.

This card’s benefits are 30,000 miles sign up bonus, double miles on United purchases, first bag free, priority boarding, two one-time United Club passes, no foreign transaction fees, and easier award bookings fora $95 annual fee.  Hey, that sounds pretty good at first.  However, if you look at the benefits of being a Silver or higher on MileagePlus, then you notice they are almost the same benefits that you gain with this card – priority boarding and a free bag.  Now, you do get the two United Club passes that normally sell for $50 each.  Fine, but would you pay $50 for a one-time visit to there?  I didn’t think so.  So, if you have no status and can fully use the benefits, such as saving on a free bag for you and your companion, great, this is a good deal.  However, for all of you with even the lowest level of status, I would recommend passing on this card.

Let’s compare that with another similar card, the United Club Credit Card.  This card costs a whopping $395 annual fee and gives you access to United Clubs and Star Alliance lounges worldwide, two free bags, 1.5 miles for every dollar spent, priority boarding access to the elite line at TSA, no foreign transaction fees, no close-in award booking fees, and some other minor things.  You would probably think, who would pay that much for a credit card, until you realize that a normal annual membership to the United Club is $400-$500 depending on your status.  Personally, I fly so much that I have purchased a United Club membership for several years (except when I was deployed) and even as a 1K I would pay $400 (soon to go up) so this makes total sense for me.  If you don’t fly ehough to stay at a club more than a couple of dozen times a year, then this probably isn’t worth it to you.  Note that if you are Gold or higher, you already get club access to Star Alliance lounges when flying internationally, so aother reason to pass on this card if that is your most common situation.

Finally, Question Number Three talks about yearly bonuses.  I have already mentioned the value of certain yearly bonuses like the Marriott free hotel night, but many of the cards have one.  An example is the United Select Mileage Plus card that I have had for years and is no longer offered.  I get a companion certificate on my anniversary every year.  The trouble is that I have a hard time using it since my wife and I rarely travel on exactly the same schedule.  However, I did use it this year to go to BAcon and saved $400.  Companion fare certs are one of the best benefits you can receive and make for a lot of savings on a family vacation.  The card also gives my 5,000 EQM on the MileagePlus Program after I spend $35,000 in a year.  Don’t laugh, I have spent that much every year without really trying hard.  Expenses really add up and that does not even include my wife’s spending!  So examine those spending thresholds and make that part of your evaluation provided you think you can get to that spending level.  I typically evaluate the cost of the annual bonus and compare that to the cost of the annual fee.  The bonus cert for a free hotel night/ ticket almost always is worth more than the annual fee.

A final thought on credit cards is that you have to be disciplined.  Charge everything that you can so you rack up the maximum miles and points, but make sure that you have the money in the bank to pay it off!

Posted by glenn | 5 Comments

5 responses to “Credit Card Basics”

  1. Alex (@NoviceFlyer) says:

    I am very new to this hobby. I just got a US Airways mc a few months ago and it’s been pretty nice enjoying some of the perks like free passes, companion tickets, first class check in, etc.. It did take discipline from charging a lot on it, I do carry a balance each month but it’s minimal I pay 1k+ a month on it. Once I’ve had it for a year I will apply for a more beneficial card for my needs. Thank you for this article.

  2. Carl P says:

    The balance you carry over may be minimal, but did you realize most credits cards calculate interest based on average daily balance. You may be paying interest on more than the statement balance.

    I hope you’re charging less than a 1K a month, or of course you are digging a deeper hole (if you keep only paying 1K a month).

    If it is even somewhat hard to not not buy things you wouldn’t have otherwise, and you’re not paying in full each month, I’d say you have some red (or at least orange)flags flying already.

    Look carefully at whether you may be better off with a lower interest card, rather than a travel card.

    I know you were appreciative of the article, so heed the first warning “First of all, and most importantly, only get a miles or points card if you will PAY OFF THE BALANCE EACH MONTH.”

    I’m not being judgemental – just trying to ne helpful.

  3. Jonathan says:

    @Alex – In my humble opinion, that is not a card you want to keep in your wallet. Yes, the sign-up bonus is nice, but in terms of ongoing spend, cards like the Chase Sapphire Preferred or Amex Premier Rewards Gold are much more lucrative.

    Actually, to be perfectly honest, and I ask that you don’t take offense to this, credit cards probably aren’t right for you at all. As Glenn has already stated, the interest you’re paying on the balance you’re carrying is probably outweighing the value of the points you’re earning.

    Do the math. You’ll probably realize you’re better off with a debit card. Anyway, welcome to the game and good luck.

  4. Joey says:

    Awesome article for beginners! Thank you. To help “control” myself in this game, I normally have a goal trip in mind for the next 12 months (i.e. going to a friend’s wedding in India or flying first class for honeymoon, etc.) By doing so, I can plan out which credit card would work best for me (and hope the bank approves my application!)

  5. Grant says:

    I usually sell my 2 united passes on eBay for around $30 total. So if you get the Chase United Explorer card, you might want to consider that.

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