When you’re getting started in the free travel via credit card churning and manufacturing spend game, one of the first things you’re going to want to know are the three types of credit cards that exist.
There are several types of credit cards, however, overall they fall into one of these three buckets. This is just a high level way to understand how this credit card is going to impact your strategy and the first year of your strategy with that card.
I classify cards into one of three buckets.
No Annual Fee: This means that you can sign up for this card today, get approved for it, use it for the first year, pay no fee. Use it for the second year, pay no fee, etc. Unless they decide to change something down the line, there won’t be an annual fee on this card. The only time you would ever pay to use this card, is if you made the foolish mistake of carrying a balance and paying interest on your purchases. For obvious reasons, don’t ever do that as that will negate your hard work!
Examples of these cards: Discover It, Chase Freedom, Citi Double Cash.
What you’d typically see on a card like this are 1% cash back on all purchases and then 5% cash back on what’s called “rotating categories”.
What are rotating categories? A rotating category means that they segment the year into 4 quarters. So you’ll have January, February, March, that’s Q1. April, May, June is Q2. July, August, September is Q3 and October, November, December is Q4.
During each of those quarters, they will segment a type of store. For example, it might be grocery stores, movies, online shopping, gas, etc. When the card is designating that segment for that quarter, as long as you go on and activate that you’re interested in participating, all of your purchases on that card that are in that category will receive 5% cash back as opposed to the typical 1% cash back. That’s typically up to $1,500 in spend.
So, we’ll get into why that’s really beneficial later down the line. That’s what your typical “no annual fee” card looks like.
The Citi Double Cash, however, is a bit of an outlier because on that card, as long as you’re paying your bill off every month, you’re getting a straight 2% back on all of your money.
Annual fee, waived for the first year: Now these cards typically carry some good sign up bonuses. What we’ll learn over time, is that, the sign up bonuses are really going to make the majority, the overwhelming majority of your points. You’re going to open a new card and go for that big sign up bonus.
Sign up bonuses are typically tied to a spend requirement, for example, earn 50,000 points if you spend $2,000 on the card in the first three months that you have it open.
These cards are so awesome for that strategy because once you open the card and you hit that spend, which you can typically do, by simply reallocating all of your spend from a month or two on to that card.
Typically, it’s just one month, assuming you live in a reasonably pricey city. Maybe two months if you live in a more affordable city. By doing that, you can hit that spend minimum and earn those points. It’s a very, very easy, straightforward strategy. Over time, before that annual fee kicks in, you can cancel that card. Basically, you just earned a ton of points for your normal spend.
One thing to keep in mind is that some of these cards will give you a bonus on your anniversary. It’s up to you to weigh the value of that bonus against paying the fee for the card. Also, you’re highly encouraged to call up before the annual fee is due and say you’re thinking of cancelling because of the annual fee and see if they can offer any retention bonuses. If they do, you’re coming out ahead of the game. If they don’t, consider cancelling the card. TIP: The first retention bonus they offer may be far from the best, keep asking if they have any other offers available.
Annual fee cards: These are cards that are like the “no annual fee for the first year”, but they do carry an annual fee. You will get hit with it for the first year. Remember to take this into account in your strategy in understanding how many points you’re going to earn from that sign up bonus and factor that initial upfront fee for the first year into that strategy.