Those who are not carrying a balance on their credit cards can think of them as financial instruments to be optimized. Just like investments, credit card users can hold a portfolio of credit cards that each serve a different purpose in order to maximize their returns.
Each cardholder will have different spending habits and will value various types of rewards differently. For example, a single person in New York might spend most of her money on dining and entertainment and never visit a gas station, while a family living in a rural area will spend much of their income on gas and groceries. Likewise, some cardholders might heavily value points and miles best used for international travel, while others have less need for travel rewards and prefer cash back.
Once you have determined where you spend most of your money, and which types of rewards offer you the most value, cardholders can start by looking for the cards that offer the most valuable returns at the stores visited most. For example, the American Express Everyday Cash Preferred card features 6% cash back at US grocery stores, on as much as $6,000 of annual spending each year. Other cards might offer double, triple, or even 5x rewards at gas stations, restaurants, airlines, or hotels.
Credit card users should limit their acquisition of cards that offer category specific bonuses, as it is simply not practical to carry and use a different card that offers a bonus for every type of purchase.
At the same time, there will be many types of charges that are not part of any bonus category. These types of charges can include large expenses such medical bills, car repair, school tuition, and child day care. For these types of charges, cardholders need to have a single card that offers the maximum returns on all charges, regardless of their type. For example, Citi's Double Cash card offers 2% cash back on all purchases, while the Capital One Venture Rewards and the Barclaycard Arrival Plus card both offers double miles on all purchases where each mile is worth one cent as statement credits towards travel expenses.
Cardholders might wish to consider having one or two cards that offer specific benefits. For example, international travelers should be sure to have a card with no foreign transaction fees and an EMV smart chip to ensure compatibility with the latest generation of credit card terminals. Some might wish to have a card that offers access to airport lounges while others might just want benefits at their favorite retail store.
One of the problems people cite when it comes to having a portfolio of credit cards is the difficulty in remembering which card to use for which type of purchase. A simple solution is to apply a small piece of tape on each one, and write list of the types of stores where that card earns bonus rewards.
Another problem is keeping track of all of the bills. To alleviate this problem, cardholders can request that all of their statement due dates be changed to the same date of the month. Another tactic is to enable automatic notifications via text or email.
By holding several different reward credit cards, cardholder will essentially be using the best tool for each job, and earning the most valuable rewards possible. This strategy also helps cardholders build a strong credit history, which can be limited by having just one or two credit cards.
Investors take the time to carefully choose the financial products that offer the greatest returns, and credit card users should follow their example.
