Whats in My Wallet & Sock Drawer

The Frequent Miler had an article about which annual fee cards he is planning on keeping. It got me thinking about my own credit cards.

Quite a few are up for their annual fee and its time to make some decisions. Do I keep the credit card and pay the annual fee or singing “na na na, hey hey good-bye,” to it. The decision is not easy, because I deduct credit card annual fees from my travel budget. They are an expense to my travel hobby/addiction. Keep to many and the annual fees can add up quickly.

Here is a list of all the credit cards in my possession and my thinking at the moment of keeping or canceling:

Keeping:

Banana Republic (no annual fee)

Hilton AMEX (no annual fee)

US Airways World Mastercard (no annual fee – oldest credit line)

Capitol One Card (no annual fee)

Chase Hyatt ($79 annual fee – free night on anniversary)

Chase Priority Club ($49 annual fee – free night on anniversary)

US Bank Club Carlson ($75 annual fee - 40,000 point anniversary bonus)

Undecided:

Chase Sapphire ($95 – 7% dividend every January – last years’s: 1500 points)

Chase Southwest – Personal ($99 annual fee, 6,000 miles anniversary bonus)

Chase Southwest – Business ($99 annual fee, 6,000 miles anniversary bonus)

Alaska Airlines ($75 annual fee, $99 companion pass each anniversary)

US Airways Premier World Mastercard ($89 annual fee, - 10,000 miles anniversary bonus)

Bye Bye

Chase British Airways ($99 annual fee)

Chase United Airways ($95 annual fee)

Delta AMEX ($95 annual fee)

Citi American Airlines ($95 annual fee)

Last weekend, I wrote that one of the keys to a great credit card is a bonus on the anniversary especially if there is an annual fee. As reflected above, those credit cards with annual fees that I am keeping offer me that anniversary bonus. I have great credit, use my credit card frequently and always pay my bills on time, I should be reward for keeping their credit in my rotation. Yes, that sounds spoiled, but every time I swipe their card, they earn money. And I swipe alot!

As stated above, one of the main reasons I let cards go is the hit to my travel budget from the annual fees. If I kept all the cards above, the annual fees would be over $1,000 or 1/3 of my travel budget. Wasting a 1/3 of my travel budget on credit card annual fee is crazy.

The decision to keep or cancel a credit card is an important part of the game. Annual fees are not going away anytime soon. To succeed in this game, one must way the cost associated with having a credit card vs. the benefits that you receive from it.

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Follow us on Twitter @doit4thepoints! Have a question for us? E-mail us at chris@doitforthepoints.com or jd@doitforthepoints.com

Newbie Debate: Best Airline & Best Hotel Chain

Chris and I disagree about many things. An interesting conversation brewed recently between the two of us and we were on opposite ends of the spectrum, to some degree. So, we decided to bring our, at times, heated conversation to the blogosphere.

Here are the two questions:

1)      What is the best US based airline for newbies?

2)      What is the best hotel chain for newbies?

When we use the term, “newbies,” we are talking about someone who has zero loyalty with any airline/hotel chain and they have never signed up for loyalty programs with airlines or hotels. A “newbie” is a virgin to loyalty travel.

 A few ground rules:

1)      Newbie lives in the Washington, DC Area

2)      She/he can fly out of DCA, BWI or IAD.

3)      Newbie has a good credit score, but no airline or hotel cards

4)      Has a job, but does not travel for it.

5)      Newbie is focused on overseas travel with a sprinkle of US base travel.

Over the next few days, Chris and I will lay out our arguments on why Newbie should pick our airline or hotel chain. Arguments will be laid out back to back based on the subject. For instance, today, I will argue for my airline and tomorrow, Chris will lay out his airline choice. Then we will move to hotels.

At the end, we hope you, our loyal readers (all five of you); will vote on who persuaded you the most too sign-up for their airline and hotel loyalty programs.

Let’s Get Ready To Rumble!!!

Important note: Chris and I may talk about the loyalty credit card for our particular airline and hotel in these posts. Credit card sign-up bonuses are an important part of the “game.” If we do decided to use credit card links, they will be public application links taken from the issuer's direct website. We do not earn income from you applying from the links. Similarly, please take an extra minute or two before applying for credit cards. If you do not pay your credit card balance off every month then you should stay away from this aspect of the game. Credit cards can lead to major long-term problems if not used correctly. I encourage you to read my post on Young People and the Chains of Credit Card Debt for more details.

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Follow us on Twitter @doit4thepoints! Have a question for us?

E-mail us at chris@doitforthepoints.com or jd@doitforthepoints.com

Young People and The Chains of Credit Card Debt

A few days ago, Travel Blogger Buzz, placed an article at the bottom of his daily post about young people and credit card usage. Written by Brian O'Connell for the website, www.dimespring.com, his article delved into the question about young people and their use of credit cards. This article stirred something inside of me.

O'Connell writes, "That may not be the case when it comes to young consumers and credit cards, as younger card holders are wasting no time accumulating debt, and are taking their sweet time paying that debt off." The article centers around a Ohio State University study released a few days ago which learned:

              "that young people born 1980 to 1984 had on average over $5,000 more in credit card debt
               than their parents at a similar point in their life and slightly more than $8,000 more
               when compared to their grandparents.

               In addition, the results suggest younger people are paying off their debt more slowly,
               too. The study estimates that the children’s payoff rate is 24 percentage points lower
               than their parents’ and about 77 percentage points lower than their grandparents’ rate."

This graphic summarizes their study nicely:



When I graduated from college, I was $4,000+ in credit card debt (and this debt was on non-mileage earning credit cards - as I only recently got in the game). This debt was the culmination of Spring Break trips, late night beer and pizza runs, and not caring about where my money went. I always though that I could pay down my debt faster after college, when I "got a real job."

I got that real job with that real salary, but then the adult expenses came rolling around. I started having to pay my own rent, which in Washington, DC ain't cheap, my cell phone bill, and then I decided to go back to graduate school by paying for cash. After all my expenses, the money I could put towards debt repayment was small. On top of this, I was putting more debt on my credit card. I kept on rationalizing that my next bonus will clear all the debt. Well...it didn't.

Finally, I got sick one day looking at my credit card balances. Literally sick to my stomach. I think I threw up that morning. How did I allow myself to get this chain of debt attached to my leg? I decided to stop the madness and go on a strict cash diet. I cut my expenses by 70%, brought my lunch to work, reduced my nights eating out and restricted money spent on my social life. However, I paid off my debt accumulated in college ($4,000) in 24 months. 24 months to pay off those late night pizza and beer runs and that trip to Spain. What was I thinking in college? I don't remember what the interest payments added up to for the debt, but it was expensive. Not worth putting that pizza on the credit card.

Why do I bring this article up and my personal experience? A big part of winning the "game" is applying for credit cards for their sign up bonuses, spending the minimum required for the bonus and closing the card shortly their after. The big bonuses are eye popping and once you learn where those points can take you, the appeal of them gets more and more appealing. One can get caught up in the game and this is the where the real danger begins.

Let's take a young person, who reads about the fabulous trip reports by Lucky or The Points Guy and wants to emulate them. He reads that the best way to get your own amazing trip reports by signing up for credit cards for their bonus. This post is not laying blame on any one blogger. I use Lucky and The Points Guy as people who put together amazing trip reports. This young person is attracted to Chase Sapphire, because its cool looking and comes with a greats sign-up bonus of 40,000 points. However, he has to spend $3,000 in 3 months for the bonus. He is approved and the card is now in his hand. As recommended by the Bloggers, he puts everything on his credit card. Now, he is in his last month and he still needs to spend $1,500. He researches easy ways to meet credit card spend limits; he buys gift cards, VISA prepaid cards and even funds a KIVA account. 

Good News:  He hits the minimum spend and earns his 40,000 points

Bad News: His credit card balance is $2,200 with no real way of paying it off, so he continues to make the minimum payment only - it would take him about 191 months or ten years to pay off the debt.

Is 10 years of payments worth 40,000 points?

The real trouble probably does not happen by Joe Schmoe getting one credit card. Its most likely happens when he tries to get two or three credit cards with a combination of minimum spends of $5,000 or $7,500 in three months at the same time. He will ensure the minimum spend requirements are met and worries about paying off the debt later.

Can you see where the "game" can becomes dangerous.? One can easily get caught up in the game. Do whatever it takes to get to the next free night, flight or status level. Before you get a credit card, you need to ask yourself, can I meet this bonus threshold in the maximum time frame. When I applied for the Starwood AMEX, I only applied for that one card as I was fearful, I could not meet the $5,000 minimum spend requirement in 3 months. $5,000 is a lot of money. I barely hit the $5,000 and now I know that is my limit.

Before you apply for a credit card, you need to ask yourself three questions:

           1)   Would I be able to hit the minimum spend requirements in the prescribed time?

           2)   Will I spend frivolously on things I don't need to meet the spend requirements?

           3)   Do I have the means to pay off the debt put on the credit card within 30 days?

If your answers are Yes, No, and Yes, then you need to ask one more question, "Will this hurt my credit?" Your credit rating is one of the most important assets you have. Your score is something that you have direct control over. This 3 digit score controls so much of your future: from your ability to get your dream job to being able to buy your dream first home. (Today, the difference between a person with a 720 credit score and 680 is 1/4% increase in rate - or  $170 more a year per $100,000 borrowed). As a mortgage loan officer, I have seen hundreds of credit scores. Some great, some good and many bad. One of the common threads of those who have bad credit is the amount of debt vs. maximum credit limits. Typically, when I talk to borrowers about the size of their debt or missed payments, it steams from their 20s. In our 20s, we are under the belief that we are invincible and we lack the focus for the future, so we make stupid decisions.

I concluded this post by urging all young people to live a credit card debt lifestyle. Live within your means. I am not advocating not getting credit cards, because the lack of credit cards can hurt your credit even more than excessive credit card debt. What I am urging all young people thinking about entering the "game" or already playing the game, is to think smartly. Ask yourself the three questions above before applying for every credit card. Track your credit report and score, by using your three free reports provided by www.annualcreditreport.com or use credit monitoring services like www.creditkarma.com. Power is knowledge in the credit game. Ignorance of your credit will only lead to trouble year later, when it time to make major decisions like a car, house or dream job.

Take it from me...paying off trips and dinners taken two years ago, sucks. No amount of points is worth adding the chains of debt to you.

Which Credit Card is Right for You?

Over the past week, I have been asked a few times which mileage earning credit I would recommend. In college, one of my favorite professors use to say, “If you have a question on something, it is high likelihood that others in the class have the same question. So ask the question.” Using that logic, I thought I would share my opinion.

If you are looking to add a mileage earning credit card to your wallet, you should ask yourself the following questions:

1)      What credit cards do you already have?

2)      What is your end goal in collecting miles? A free flight? A free hotel?  A dream vacation?

3)      Looking over the last two years, what airline did you fly the most? What hotel chain did you stay at the most?

4)      How many flights did you take this year?

5)      How much money do you spend in a given month?

Let’s use my friend Clay as an example:

1)      What credit cards do you already have, Clay? Chase Marriott only.

2)      What is your end goal? To go on vacation with my girlfriend.

3)      What airline and hotel did you fly the most over the last two years? United and Frontier and Marriott.

4)      How many flights have you taken this year? About 5, equally split between the two airlines.

5)      How much do you spend in a given month? A couple thousand a month between rent, utilities, & personal expenses.

With the answers to these 5 questions, we have learned a lot. For instance, since Clay’s end goal is that

he wants to go vacation, we know he will need flights and hotel nights. Since, he already has the Chase

Marriott card and stays at Marriott, we can assume he has Marriott points; therefore, eliminating the

need for hotel nights.

Now redefining the end goal as free flights, we can focus our attention on credit cards that earn miles. 

Looking at his travel patterns over the past two years, we see he spends time on both United and

Frontier Airlines. I suggested him focus only on United, as it is a member of the Star Alliance giving

him access to 20+ airlines.

There are a few credit cards that come to mind that allow people to earn miles on United: United 

Mileage Plus Explorer Card, United Mileage Plus Club Card and Chase Sapphire. To decide which

credit card fits Clay best, one needs to look at the benefits of each card; ie free bags, lounge access, 

priority boarding. After a quick conversation with Clay, I learned that he does not need free bags

because work pays for them on his business trips and he flies home normally on Frontier. With that

information, I told him he should apply for Chase Sapphire (40,000 Ultimate Rewards after spending 

$3,000 in three months) and have the ability to transfer to many airlines (United, Korean Air,

Southwest and British Airways.)

The last of the five questions is to determine if you can meet the spend threshold to get the sign-up 

bonus. If you can’t hit the spend threshold and snag the bonus, then don’t apply for that particular card. 

The sign-up bonuses are where you are going to get the most bang for your buck.

The ability to hit a spend threshold was critical in my recommendation to another friend. This law student 

flies exclusively on US Airways and has a limited budget. My recommendation was a no brainer – the 

Barclay US Airways Dividend Miles MasterCard with a 30,000 mile sign-up bonus after your first 

purchase.

If you are questioning which credit card should fill your wallet, answer the five questions above honestly 

and the answer will become much clearer. The first step in succeeding in the frequent flyer game is to get 

a mileage earning credit card, so you leave no points behind.

Happy Applying!!!

My First Major Credit Card Churn

At the end of July, I completed my first major credit card churn.

Someone who completes a credit card churn applies for multiple credit card applications on a regular basis to get as many frequent flyer miles as possible. They apply for a card, spend the minimum amount necessary, get the frequent flyer miles, cancel the card a year later, and then do it all over again.

In the past, I would apply for one or two new credit cards every three or four months. However, in July, I thought I would go for four credit cards. A possible big risk, but the rewards would be huge.

The four credit cards I applied for are:

Chase Hyatt –  Sign-up Bonus: 2 Free Nights, 2 Paid Night Upgrades, $75 statement credit all after the 

                          first purchase, $75 annual fee.

Chase United Explorer Card – Sign-up Bonus: 50,000 miles after spending $1,000 in 3 months

                                                   (I was targeted for this offer), $95 annual fee, waived for first year

Hilton Amex – Sign-up Bonus: 50,000 miles after spending $750 in 3 months, no annual fee

US Airways MasterCard – Sign-up Bonus:  40,000 miles after first purchase $95 annual fee, waived for 

                                             first year

Now the downside of my recent credit card churn. I checked my credit using CreditKarma (more about this website in a future post) and my credit has dropped by 10 points. A 10 point drop is expected by adding four new cards to one’s credit report.  My credit should bounce back to it original 775 score by December, just in time for my next churn.

As I stated Wednesday, I finished my spend requirements for these cards already, so I am back to using the British Airways Credit Card trying to hit that second 25,000 bonus. 

Was it difficult? No way. 

Was it worth it? Oh, yes. This recent credit card churn netted me almost 4 round-trip tickets to anywhere in the United States or close to 2 one-way tickets in business class to Europe or Africa plus at least 4 free hotel nights all for about 1 hours worth of work.

Credit card sign-up bonuses can increase point balances to levels that travel dreams become reality!