There are many different cash back rewards credit cards to choose from and with all of the credit card legalese around points, miles, caps, tiers, rotating categories, etc. it can be enough to make your head spin! Luckily, Evan from My Journey to Millions had a great idea and he recently contacted me to do a mini case study to help he and his wife find the best cash back rewards credit card given their spending habits and financial goals.
(If you have not checked out Evan’s blog I would encourage you to subscribe to his RSS feed as Evan is a practicing estate planning attorney and brings a great deal of financial expertise to many personal finance related topics.)
Let’s dive right in and I will give you some of the details that Evan has given me and then we can try to decide what cash back credit card or rewards credit card will be the best choice for Evan and his wife to consider applying for.
Evan: “Just Me, The Wife and our Little Dog for now. Hopefully, a Child will be joining us soon but for the next 9 months its just us.”
Evan: “We have a manageable mortgage, law school loans, and a car loan, but relatively no credit card debt. The Wife and I only plan on using the chosen card for monthly expenses which are to be paid off on a weekly basis (i.e. groceries, gas, dry cleaning, etc.).”
Current Cards & Experiences
Evan: “Between the two of us we have a lot of credit cards even though there isn’t any debt on them: Couple of Discover Cards, Bank of America Visa Signature, Citi Premier Pass, Carnival Sea Miles, and Amex Blue Card. I love my 5%/1% Discover Card, but the Wife refuses to use them since most places do not take Discover, and I often feel awkward giving it to a restaurant since 92% of the time I would get rejected. I used my Carnival Sea Miles for years and when I went to redeem my 10,000+ points it equaled $75 off of a cruise. $75! For 10,000 points!”
Ideal Credit Card
Evan: “The Wife and I want a card with no fees, whose points actually mean something (unlike the Carnival Sea Miles Card). APR is less of a concern since we have full intentions (and more importantly a plan) of paying off the Card every single month, in full. The points can be cash, flights, vacations, pretty much anything as the amount of points are in line with the redemption. I really like the Chase 1% towards your mortgage CC, but my mortgage is with HSBC.”
Credit Card Recommendation
The first thing that I have to mention is that Evan and his wife have exactly the right mindset about credit cards. They have a plan to manage credit responsibly which means paying off the balance in full every month and then making their credit cards work for them by earning cash back or rewards instead of making their credit cards work against them by going into credit card debt.
Here are the steps that I would recommend for Evan and his wife as they attempt to narrow down their search for the best cash back credit cards (and then I will choose my overall favorite cash back card for their specific situation):
- Use our cash back credit card calculator to determine what credit card will fit your spending habits. Different credit cards have different cash back and rewards formulas so if you take 2 different credit card shoppers that each spend the same amount of money every month but in different spending categories (travel, gas, groceries, dining, etc.) then the card that will maximize their cash back savings will likely be different. For example, the American Express True Earnings Credit Card offers 3% cash back on all gasoline purchases up to $3,000 in gas purchases for the year and then 1% thereafter (as well as a minimum of 1% cash back on everything else with 2% cash back for travel and 3% cash back for restaurants) while the Iberia Bank Visa Gold Cash Back Rewards Card offers 1% cash back without limit on all purchases including gasoline which means that their formulas for calculating cash back can be very different depending on the type of spending category.
- Consider using a tag team approach with your cash back cards in order to maximize the cash back earned. American Express and Discover have 2 of my favorite cash back cards in the previously mentioned American Express True Earnings Credit Card and the Discover More Card but as was mentioned earlier Discover (and to a lesser extent American Express) is certainly not accepted as many places as Visa or MasterCard. This means that using a combination of a Discover/American Express credit card and a Visa/MasterCard credit card can be a smart way to get the most overall cash back.
- Consider using a percentage based cash back card rather than a points based cash back card. This is just a personal preference of mine as there are a lot of good points based credit cards that offer cash back (the Chase Sapphire credit card is one that comes to mind) but I have always found it easier to just know what percentage of a purchase I am earning as cash back and to just count on getting that cash back check like clockwork rather than trying to remember what my points to cash back conversion metric is and having to hassle with redeeming points. Again, this is just a personal preference of mine and something that I have found helpful for me.
OK, now for my recommended cash back card rewards card for Evan and his wife based on the information they have provided. Of course, Evan and his wife can take or leave it because this is just my two cents and the people who ultimately have the most inside information on what will work best for them is them! Given that there are no minimum spending requirements to earn cash back with any of these cards I would advise Evan and his wife to:
A. Continue using the Discover Card at places that accept Discover since the Discover More Credit Card has one of the best current cash back programs.
B. Also consider applying for the American Express True Earnings Credit Card since they are accepted at more places than the Discover Card and almost as many places as Visa or MasterCard and they also have one of the best cash back programs (this is actually the credit card that I use most often personally except for one caveat is that you must be a Costco member to have the card so with Costco memberships costing $50 a year that is nothing for someone who is already a Costco member or who wants to become a Costco member as is the case for my wife and I – however, it could be considered an annual fee for someone who would not otherwise want a Costco membership.)
C. Also consider applying for the Chase Freedom Credit Card since this card is accepted everywhere that Visa is accepted and can be used as a backstop for any place that does not accept the Discover or American Express credit cards.
With the above 3 fold approach to maximizing their cash back rewards then Evan and his wife could see a minimum of 1% cash back and a maximum of 5% cash back everywhere that either Visa, Discover, or American Express is accepted. Another side benefit to using multiple cards is that they can keep their credit utilization ratios fairly low without having to make more than one credit card payment per card per month (unless they get approved for a very high credit limit relative to their average monthly credit card spending then using multiple credit cards won’t matter as much).
What do YOU think is the best cash back rewards credit card?
- TrueEarnings Card from Costco and American Express
- TrueEarnings® Business Card from Costco and American Express OPEN
- Charles Schwab Credit Card w/ 2% Cash Back Rewards is Not Taking New Applications
- Are there any free online credit cards available?
- What is a good restaurant credit card?
- Virgin Atlantic White Credit Card
- Citi AAdvantage American Express