Everything You Need to Know About Credit Cards
so everything you need to know about credit cards, we are really digging into it when it comes to credit cards today. But first I do want to talk about the fact that credit cards can be a powerful tool and I want to talk about this because I know that there are some people who really do not like credit cards and definitely other personal finance experts that will tell you never to carry one. This comes down to the idea of it being personal personal to you and you understanding how you relate to these kinds of tools if you know that you cannot have a credit card without creating credit card debt. I basically want you to fast forward through everything I'm about to talk about because it's never, there's never a point in trying to hack the reward system if it's just going to encourage you to create debt for yourself because there's no payoff, you're just gonna end up paying interest to the bank which frankly is kind of their goal here with some of this rewards offerings that they're doing...
. So please be sure that you know yourself but a credit card can be a really great tool that can help you build credit history without actually ever carrying debt. If you always pay that balance off on time and in full, every time the statement bill comes in then you are never carrying debt month to month and you're not paying an interest rate. Another thing I love about credit cards is much better fraud protection and I only ever swipe credit cards now, all other points in my life because it offers much better fraud protection for one. They've got great algorithms that is looking to see if someone else is spending your money for two, it doesn't have direct access to your checking account. So if somebody does steal your credit card and I've had that happen to at least they're charging things, it's not pulling money directly out of your your checking account at your bank and so hopefully fraud can detect it very quickly at whatever credit card companies use or maybe you notice because you have now like me text alert setup so every time a purchase is made you get a little text message that says where and what it was and that way again they're not stealing your money directly and usually credit card companies are pretty great about refunding any fraud that happens so you're not actually on the hook to pay it. So that is my little soapbox about credit cards. I love them if you can use them as a force for good in your life. But if it is going to encourage you to have any sort of debt or be carrying any sort of debt, I basically want you to fast forward through this next bit and not even pay attention because I don't want you using a potential debt tool in your life. So the first thing and I've talked about it a lot already but I'm going to reiterate, you always need to pay off a credit card on time and in full. If you are only watching this section of this bootcamp and you haven't watched the actual credit score and reporting segment, I would encourage you to go back and check that one out where I really get into the nitty gritty about this. But there is certainly a myth that exists that makes people think that it's okay to carry a balance over a month to month on a credit card. They've even been told maybe that will help improve their credit score. That is not true. I do not want you to be focused on that every single time you get a credit card statement, I want you to pay off the entire bill on time and in full. It's a great way to be building your credit and you're not creating debt for yourself. Now with that out of the way, let's actually dig into the different structures for credit card rewards and how you can use them in your own life. There's three very common structures when it comes to rewards and that is one rotating categories. It sounds something like, hey, you can get 5% cash back on going out to dinner for this quarter and the next quarter you get 5% cash back at Sam's Club and Costco and the big box retailers and then you get 5% cash back anytime you go to the movies and it changes every quarter. So every three months it's going to rotate Next is flat rate easy, 2% cash back on everything that's your flat rate and a sign on bonuses. Hey, if you spend $5,000 in the next three months, we'll give you 80,000 bonus points and you can use that for things like travel or hotels or cruises or whatever you're interested in. So first rotating categories often work on a quarterly structure. Typically you hear 5% cash back. Of course that can certainly change depending on the card, but that is generally the very high spiked reward option and it's there for about three months and then it changes over to something else. So like I just said maybe for three months you're getting cash back every time you go out to eat. Then it's cash back every time you pump gas into your car and then it's cash back every time you go to the movies. Otherwise it's 1% back on all other purchases that you're making. Now, one of the big traps of this particular type of rewards card is usually they require you to opt in, which means every time it switches before the switch happens, you have to log in and click something like I opt in for this rotating category. And if you don't proactively opt in, They won't do it for you. They'll just have, you earn 1% cash back on everything else. The other thing that's kind of a bummer with rotating category credit cards is you're never quite sure what the categories are going to be a year to year And because of that it might not actually be anything that aligns with how you spend money. Flat rate is the easiest. If you're just looking to get started, you want a really easy credit card, you're going to go with a flat rate card that will say something like 2% cash back on all purchases, 1.5% cash back on all purchases, 1% is usually the baseline as low. So you really want to be shooting for something above 1% when you're thinking about getting a good deal on a flat rate card. A lot of times these cards do not have annual fees tied to them, which is also great, which makes them super easy, user friendly, good rookie card and it's something that you can just kinda go on autopilot and passively every time you swipe your card, get a little bit back the sign on bonuses. What we often hear about when we're talking about rewards because this is where people like travel hackers. So those people that you hear about that spend basically no money to go on a really nice vacation. How the heck did they manage that? It's usually with sign on bonuses from credit cards and I will say these usually have an annual fee tied to them and we will get into how to evaluate an annual fee. Never ever actually makes sense to pay. So how do you pick the card that's actually best for you? Well for one you might just want something simple, especially if you're just starting out your new to the credit card game. Do not actually go chasing rewards at any point. Easy, flat rate. I wouldn't even do a rotating category because it still requires the whole opting in thing. The other option is for you to maximize your common spending categories and another's course travel hacking So first, like I said with that something simple easy, just want a little bit back but you're not super comfortable with credit cards yet. You're definitely not ready to travel. Hack, you're just gonna swipe passively get some money. Now this is really a next level up for people who genuinely enjoy this type of stuff because this idea here is that you have a different card that maximizes every single main spending category that you have and this takes a lot of thought process and work quite frankly, I don't do this. This is really intense stuff in my opinion, but it's a one great way to truly maximize reward spend. And if you're going to do it, I also recommend labeling those actual credit cards in your wallet so you don't get confused, especially because all of them kind of tend to look the same. So put a little plastic label on the front, it's like gas card, grocery card, whatever it is, travel hacking. This is also a black belt level credit card move if you're going to be doing this, it is super easy to fall into credit card debt if you're not really careful. So I want you to make sure that you're only doing this if you have health, you've used a credit card and you've been healthy with it for at least two years, you've never once carried a penny of credit card debt. You always pay on time and in full. Then you might be at the level where you've really earned the right to travel. Hack and it's a privilege that you've earned again. How it breaks down is it's a card that offers you a big sign on bonus and you chase that bonus in order to be able to subsidize the cost of flights or hotels or rental cars and cruises or however it is that you like to travel. There are also sign on bonuses that just could be cash in your bank account that people use. But typically the sign on bonuses are generally for people who like to travel and that's how they're going to subsidize the cost. This is something that I do. I actually enjoy doing. So every time you apply for a credit card it's not like, oh a different type of credit, it's just a different type of the same piece of the pie. I have eight credit cards in total right now and I have a 798 today credit score. We'll see what it looks like in the next couple of months. Um so you, I wouldn't stress too much about it as long as you are paying on time, your utilization is low. So the total amount that you're using of your available credit limit isn't crazy. It doesn't do all that much harm. But you do have to think about the fees which I'm about to get into in a moment. That's definitely another piece of that travel hacking puzzle that you have to figure out. I wouldn't stress about it too much. There are people I know that have opened up to 20 cards open at a given time and they also open and close, open and close and you're right, this all does impact your credit score. But if you are in the very high 700s the amount that it impacts, it can be negligible because you're still staying above 720 most of the time. 7.20. Kind of being a magic number for you to unlock the top to your financial products. But that is also why I say if you are getting to a phase of life where you need to apply for some sort of loan, especially things like a mortgage and you want your credit score in the best strongest possible shape. Don't be opening any financial products but definitely don't be turning credit cards either. I will talk again actually about the annual fee that I referenced with that first card and people who are travel hackers know exactly which card I am referring to But a high annual fee. You might sound absolutely insane to you when you first hear it. Such as $450. That sounds like insane money kind of annual fee and I definitely like no way I would never spend that kind of money for a credit card but you have to break it down and how does it actually work? So research all the benefits of the card itself in order to figure out is this fee actually starting to pay off for instance with that $450 you paid the 4 50 annual fee but then you immediately also got a $300 travel rebate. So in addition to trying to get those 100,000 points, if you hit the spending threshold, you also automatically got $300 rebated on your credit card for anything related to travel. So a hotel even Uber's and Lyft's and any other rideshare service counted too And it just automatically would deduct off the credit card when you would swipe that card, it would just pay itself back real quick so that knocks a $450 annual fee immediately down to 150. And then the next thing that I did one of the other fees that are opportunities rather that you had with this card is if you applied for T. S. A. Precheck or global entry it would rebate the fee for that. So I did not have global entry yet. It's $ fee. I paid for it with the card. The card re baited it for me so I didn't actually pay it quote unquote and that then knocked the card fee down to $50. Then one of the other perks is you got access to something called priority pass which gives you access to airport lounges around the world. So now when I travel I can go into an airport lounge and it's a perk of my credit card. And that to me recoup that $450 value in addition to the fact that I was going to earn 100,000 miles which was equivalent to about $1300 of travel money. If you then books through this credit cards online travel portal. And this might all sound absolutely like insane talk the way I'm talking about it right now. But this is how you have to think if you're going to be travel hacking, you have to evaluate all the different fees, decide if it's a good decision