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With so many solid credit card options out there, it can often be difficult to decide which is the best choice for a given purchase. TPG Senior Points & Miles Contributor Nick Ewen explores the various factors to consider when deciding upon a card for non-bonus purchases.
There are many ways to maximize your point and mileage earning on credit cards. For example, you can take advantage of top sign-up bonuses and make the most of category bonuses. Today, however, I want to focus on another critical element that everyone should carefully consider: everyday, non-bonus spending. How should you choose the best card for those purchases that fall outside of these bonus categories?
My strategy for this decision typically involves four different elements in a very specific order:
- Sign-up bonus
- Threshold bonus
- Specific redemption in mind
- Everyday value
Let’s take a closer look and see exactly how this process unfolds.
1. Sign-Up Bonus
The first aspect of my decision involves any sign-up bonus toward which I’m currently working. I will only apply for a new card if I’m certain that I can spend the amount required to earn the sign-up bonus. Shifting spending from another card is a great way to help hit that spending threshold. In some cases, it may even make sense to use your new card at merchants that would otherwise offer you bonus points (like a travel purchase on your new card rather than the Chase Sapphire Preferred Card).
To further emphasize this strategy, I typically spread the sign-up bonus out over the initial spending to calculate a new effective earning rate for that card. Instead of thinking about it as “Earn X,000 points/miles after spending $Y,000,” I’ll look at it as earning Z points/miles for each dollar spent.
Here’s an example. I was recently approved for the Starwood Preferred Guest Business Credit Card from American Express to take advantage of the card’s highest-ever sign-up bonus (35,000 Starpoints after you use your new card to make $5,000 in purchases within the first three months — though the offer’s no longer available). The card usually offers you 2 Starpoints per dollar spent at participating SPG properties and 1 Starpoint per dollar spent everywhere else. However, when you spread that sign-up bonus out over the $5,000 initial spending, it becomes much more lucrative:
Regular earnings: $5,000 x 1 point per dollar = 5,000 points
Sign-up bonus: 35,000 Starpoints
Total earnings: 40,000 Starpoints (worth $1,000 based on TPG’s most recent valuations)
Return: $1,000 ÷ $5,000 = 20%
As you can see, by including the sign-up bonus, you’re getting an incredible return of 20% on your first $5,000 of spending on the card. Sounds like a great value proposition to me!
2. Threshold Bonus
If I’m not currently working toward a sign-up bonus, the next thing I’ll do is consider which of my current credit cards offer some type of a bonus for reaching a certain level of spending. Many of these are based on a calendar year, but some are based on a cardmembership year (which may begin on the date you were approved or the date the annual fee comes due). If I can snag a bonus for spending a certain amount of money on a card, that boosts my overall rate of return on those purchases.
One prime example is the Citi Hilton HHonors Reserve Card. If you spend $10,000 on the card in a cardmembership year, you’ll earn a free weekend night certificate valid at just about any Hilton property worldwide. While the card’s regular earning rate isn’t spectacular (3 points per dollar spent, so a 1.5% return based on TPG’s valuations), earning this free night certificate changes the calculus significantly:
Regular earnings: $10,000 x 3 points per dollar = 30,000 Hilton HHonors points
Threshold bonus: Free weekend night certificate (I conservatively value this at $300, though you can easily get a lot more value out of it)
Total earnings: 30,000 points (worth $150) and free night certificate ($300)
Return: $450 ÷ $10,000 = 4.5%
Just like you saw above, the added threshold bonus triples the effective return you get on the first $10,000 in spending on the Citi Hilton Reserve from 1.5% to 4.5% (and it could be even higher if you redeem the certificate for a more expensive property). While this isn’t a mind-blowing rate, it’s nevertheless a very solid return on spending that usually wouldn’t earn you a bonus on other cards. When I’m not pursuing a sign-up bonus, I always make sure to spend $10,000 on this card.
Other cards with these bonuses include:
- British Airways Visa Signature Card: Spend $30,000 in a calendar year and earn a Travel Together Ticket
- United MileagePlus Explorer Card: Spend $25,000 in a calendar year and earn 10,000 bonus miles
- Club Carlson Premier Rewards Visa Signature Card: Spend $10,000 in a cardmembership year and earn a free night certificate for properties in the US
3. Specific Redemption
The next element that plays a role in this decision is whether you’re working toward a specific redemption and have a limited time frame in which to earn those points or miles. In some cases this is to beat the clock on a devaluation, like the AAdvantage award chart devaluation that took effect March 22. Other times you may just have an upcoming trip and really need to boost your account balance to cover either a flight or hotel room. If you’d otherwise have no way of earning those last few required points or miles for the redemption, your spending on a less-rewarding credit card may make sense.
A great example of this is Marriott Rewards, thanks to the program’s policy that allows you to book award reservations when you’re short on points. Since you need to earn the required number of points at least one week before your arrival, charging non-bonus category spending to the Marriott Rewards Premier Credit Card could make a lot of sense. The card normally gives you 1 point per dollar spent, so a return of just 0.7%. However, let’s say that you’re 2,000 points short of a redemption that would save you $500 and that the only way to earn those extra points is on the credit card. Here’s how the calculation changes:
Regular earnings: $2,000 x 1 point per dollar = 2,000 points (worth $14)
Value of redemption: $500
Total earnings: $514
Return: $514 ÷ $2,000 = 25.7%
I don’t think many people would put the Marriott Visa high on a list of best cards for everyday spending, but in this case it makes a lot of sense. If you’re looking for a specific redemption and need to get to that threshold sooner rather than later, this may impact your choice of credit cards to pull out of your wallet.
4. Everyday Value
If the first three factors on my list don’t come into play, then you should simply go with a card that offers a solid return on everyday, non-bonus spending. Everyone has their own way of valuing points and miles, but based on TPG’s most recent valuations, here are some terrific options:
- Chase Freedom Unlimited Card: Up to 3.15% return when paired with a card that earns Ultimate Rewards (no annual fee).
- Starwood Preferred Guest® Credit Card from American Express: 2.5% return ($95 annual fee, waived for the first year). TPG’s even recommended this card as the best option for non-category bonus spending due to the valuable points it earns.
- Barclaycard Arrival Plus World Elite Mastercard: 2.11% return ($89 annual fee, waived for the first year)
- Chase Sapphire Preferred Card: 2.1% return ($95 annual fee, waived for the first year)
- Citi Double Cash Card: A total of 2% return (no annual fee)
- Alaska Airlines Visa Signature credit card: 1.8% ($75 annual fee)
Remember that these cards also offer an array of perks beyond just the everyday earning rate. I had a great experience redeeming the Alaska Visa’s companion fare benefit last year, and you’ll also enjoy primary car rental coverage on the Sapphire Preferred. However, when it comes to non-bonus category spending, you really can’t go wrong with any of them.
Especially if you’re not a road warrior, it’s important to make credit cards a big part of your points and miles-earning strategy. Sign-up bonuses are only one part of the puzzle, especially as card issuers are tightening these up, so you should also have a strategy to make the most of every dollar you put on a card. Hopefully this post has given you a framework to use as you decide which card (or set of cards) is the best option for your purchases that fall outside of traditional bonus categories.
What cards do you like using for your everyday spending?