Credit Card Hacks: Ben Hughes @rubiety

Credit Card Hacks
Ben Hughes @rubiety http://benhugh.es

Wednesday, September 5, 12
Arent credit cards bad?

Dont confound nancial responsibility with power of tools! Its simple: Never pay credit card interest by never maintaining a balance.
Why use credit cards?

Builds credit with the rating agencies. Improves cash ow management. Initial point bonuses worth $500 - $1,000. Effective 1-2% discount on everything. Spending plateau point bonuses worth $100+. Transaction logging & categorization (Mint.com) Other Benets (Insurance on purchased services,
Fraud/purchase protection, etc.)
Building Credit
Essential for young adults. Establishes payment history across many
years.
Holding spending constant:
An increase in available credit lowers your Utilization Ratio, an important element in your credit rating.
Cash Flow Management

Maintain lower cash balances: reduces
unexpected expense risk to cash accounts. month) keeps liquid assets higher than theyd otherwise be. returning investments.
Continual oat (free 45-day loan, every Holding cash has opportunity costs: higherWednesday, September 5, 12
Types of Cards
Bank Cards
Generic points Often convertible to cash (cash back) Slightly lower redemption values (price of exibility) Specic points/miles redeemable often with a single company. Slightly higher redemption values.
Airline/Hotel
Initial Point Bonuses

Pretty much free money, just for signing up
for a card (sometimes with spending requirements).
Credit card companies willing to take a
short-term lost in hopes of long-term gain (yearly fee, interest charges). even higher initial point bonuses (Chase Sapphire with 75,000 reported).
Sometimes targeted offers are sent offering

1-2% discount on everything

X Points per dollar spent, sometimes varying by
spending category.
Economic incidence: cash/check payers subsidize

are essentially tax free!
card payers. Paying cash has an opportunity cost.
Points/Miles not considered income by IRS, so they
Point Valuation
Cash back is easy to value: parity Hotel/Airline points: Look up price of alternatives you would
normally have chosen and calculate effective cash value to you
Valuation varies from person to person Sometime exhibit diminishing marginal

utility (who would use 100 nights at a Marriott?)
United Point Valuation

SAN => HKG 32,500 Miles : $655 Ratio: 0.0201 0.0222 0.0231 0.0218 0.0197 0.0273 0.0250 0.0240 0.0244 0.0238 0.0212 0.0231 SAN => BKK 32,500 Miles : $720 Ratio: SAN => JKT 32,500 Miles : $750 Ratio: Avg: SAN => LHR 30,000 Miles : $588 Ratio: SAN => AMS 30,000 Miles : $820 Ratio: SAN => IST 30,000 Miles : $750 Ratio: Avg: SAN => DXB 40,000 Miles : $976 Ratio: SAN => BOM 40,000 Miles : $950 Ratio: SAN => CAI 40,000 Miles : $846 Ratio: Avg:
International Avg: 0.0230, or 2.3 cents per dollar spent (2.3%) $25,000 purchases on Continental or United Card => +10,000 point bonus, each $ effectively multiplies this by 1.4. If this hits:
Optimizing Variable Return

Sometimes variable return depends on
conditions.
Chase Freedom: 5% return on up to $1500

on categories that vary. Use Chase Freedom for those categories. purchases with their company. points/miles.
Airline/Hotel cards give greater return on Keep in mind diminishing marginal utility of
Optimizing Fixed Return

Use cards with xed-transaction return
(say, 10 points per transaction) on cheap transactions - higher effective return.
Optimizing Spending Plateau Bonuses

Fixed benets at some level of spending in a
year (usually $25k or $30k). purchases.
Plan card acquisition before major
Paying Taxes on a Credit Cards

IRS charges 1.89%. Point valuation can be
higher than that.
Great way to contribute to spending

plateaus - optimize accordingly! your credit if this dips too low. still could be worthwhile.
Be careful with utilization ratio - could hurt California charges 2.3% - more difcult but
Maximizing Cash Float

Spread bill dates equidistant throughout
the month.
Absent other conicting optimizations, use

the card with a billing date furthest away.
Applying for Cards

Cards with best rewards require high credit (> 720) If cards have spending requirements, plan acquisition before spending. Applying will ding your credit slightly (hard credit inquiry). If getting more than one card, apply at the same time (grouped hard credit inquiries less damaging). Carefully manage acquisitions from same bank (Chase is conservative).
My Top Card Picks

Chase Sapphire Preferred (50,000 United Miles) Starwood American Express (30,000 SPG Points) United MileagePlus Explorer (40,000 United Miles) Capital One Venture (2% back on everything!) Chase Freedom (5% categories, 10 points/
transaction)
Questions?
http://milecards.com/ http://nerdwallet.com/ http://thepointsguy.com/
Ben Hughes @rubiety http://benhugh.es

Credit Card Hacks: Ben Hughes @rubiety

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Credit Card Hacks: Ben Hughes @rubiety

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Credit Card Hacks

Ben Hughes @rubiety http://benhugh.es

Arent credit cards bad?

Why use credit cards?

Holding spending constant:

Cash Flow Management

Initial Point Bonuses

Credit card companies willing to take a

Sometimes targeted offers are sent offering

1-2% discount on everything

Economic incidence: cash/check payers subsidize

card payers. Paying cash has an opportunity cost.

Points/Miles not considered income by IRS, so they

Valuation varies from person to person Sometime exhibit diminishing marginal

United Point Valuation

Optimizing Variable Return

Chase Freedom: 5% return on up to $1500

Optimizing Fixed Return

(say, 10 points per transaction) on cheap transactions - higher effective return.

Optimizing Spending Plateau Bonuses

Plan card acquisition before major

Paying Taxes on a Credit Cards

Great way to contribute to spending

Maximizing Cash Float

Absent other conicting optimizations, use

Applying for Cards

My Top Card Picks

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