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How I Compared and Chose a New Rewards Credit Card
Recently, I wanted to figure out if the rewards credit card I use was really the best option in terms of generating rewards for my normal spending behavior. I wanted to compare my card to a few of the top rewards credit cards out there, to see if my preferred card really came out on top.
I started using an Amazon.com Rewards Visa a few years ago because I recognized that I was buying a lot of stuff from Amazon after I started working remotely, mostly from my home. It was easier to just click a few times and get something from Amazon in a couple of days than to drive to the store for it, and thus an Amazon Rewards card really made sense for me.
However, as time wore on, I found that my wife Sarah and I were intentionally spending more money at local businesses, particularly after the coronavirus lockdowns when we doubled down on buying local to help keep businesses in our community afloat.
Was it time for me to switch my rewards credit card, too? Here’s how I made up my mind — and how you can answer this same question for yourself.
1. Remember responsible credit card use
Before you begin comparing rewards credit cards, it’s important to understand that none of this matters if you’re carrying a balance month to month on your card. If you’re consistently carrying a balance on your card, the interest rate on your card is of far more importance than the rewards you might gain.
For example, let’s say you have a rewards credit card that returns 2% of your purchases in the form of cash — that’s great! However, if you’re putting $2,000 in purchases on your card each month, that adds up to only $40 in rewards. If you’re carrying a $4,000 balance on a card with 30% APR, you’re paying $100 in interest per month. It doesn’t take a big balance to quickly overshadow the rewards you’re reaping, and if you’re in that situation, you’re going to benefit much more by finding ways to reduce that interest rate and reduce that balance than by finding a somewhat better rewards program.
I recommend sticking to a policy of paying off the credit card balance in full each month so that interest payments are never a concern.
2. Choose three cards to compare
With the abundance of credit cards out there, it can feel overwhelming to even be able to decide which ones make the most sense for you.
My recommendation is to choose three cards to compare.
First, select a major credit card with a rewards program associated with the retailer you use the most often with your current spending habits. In this case, I used the credit card that I already had, the Amazon.com Rewards Visa. Make sure that this credit card provides rewards in a way that’s simple for you to use, either in the form of reduced prices when you’re actually shopping with the card or easy-to-use store credit or cash back each month on your bill.
Second, select a top rewards card with no annual fee. Look for one that gives a strong percentage on all purchases. I chose the Chase Freedom Unlimited®, which offers no annual fee and 1.5% cash back on all purchases.
Third, select a top rewards card with an annual fee. This might seem surprising, but if the difference between the rewards generated by a good fee-free card and a good card with a fee is substantial, the fee can be more than worthwhile. I chose to use the Capital One Venture Rewards Credit Card in my comparison because I strongly anticipate some form of travel for my family in the next few years as coronavirus winds down and travel restrictions disappear.
[ More: How to Compare Rewards Credit Cards ]
Don’t choose a rewards program that generates rewards for something you might do in the future. Try to avoid very restrictive rewards. For example, if you’re considering a Disney World trip in a couple of years, it might be tempting to get a Disney card to help pay for the trip with the generated rewards, but you may not end up traveling to Disney World. However, there’s a good likelihood that you will travel somewhere, so a more general travel rewards card is worthwhile.
Also, don’t overvalue the signup bonus. Many cards offer a reward signup bonus, which can be a nice perk, but chasing signup rewards can be a lot of work and have a negative impact on your credit while also leaving you more open to identity theft. Consider any signup rewards to be a nice bonus, but don’t let them sway your decision unless things are very close.
3. Calculate your rewards from previous months
The best rewards credit card for you is the one that generates the most rewards based on how you already spend money, and the best way to figure that out is to evaluate your old statements. These are typically available for download using online access to your credit card account.
I pulled out my last four months of credit card statements and spent some time evaluating each one. What I wanted to know is how many rewards would I generate for the purchases I made during those months if I were using a different card instead?
It was easy to see the rewards generated by my Amazon.com Visa, as that was integrated into the bill, but for the other cards, I had to look into the details of the rewards offered.
For the Chase Freedom Unlimited® card, I could get 1.5% cash back on all of my purchases, so this was easy to calculate. I just multiplied all the charges for the month by 0.015 — that’s how much I would have received in cash back if I were using that card. When I ran this calculation over my four bills, the two cards were very close in terms of the value of the rewards.
For the Capital One Venture Rewards Credit Card, I would earn 2 miles for every dollar spent and those miles could be used at face value for airline bookings or at a reduced rate for gift cards or cash back. It also comes with a $95 annual fee. Calculating how much value I would get from this card was similarly easy — I just multiplied the charges for a full month by 0.02 and that’s how many miles I would generate. Over the course of a typical month, I would generate substantially more “value” in terms of miles with this program, but exchanging them for anything other than travel cut off enough value that the rewards were on par with my other cards.
So, here’s what I learned. For me, the Amazon.com Visa and Chase Freedom Unlimited® cards were very similar in terms of value. During months when I bought more off Amazon, the Amazon.com Visa was a winner; on light Amazon months, the Chase Freedom Unlimited® was a winner. I considered those two cards to be a wash.
What about the other card? Although the additional reward value is nice, it locks me into the rewards available within the Capital One offerings. Simply “cashing out” those rewards in the form of Amazon.com credit made this card no better than the Amazon.com card, and turning them into direct cash back was actually worse than the rewards from the Chase Freedom Unlimited® card.
For some cards, you won’t be able to just multiply all the charges for the month by a certain percentage. That’s because many charges offer different “tiers,” where you get 3% rewards for restaurants, 2% rewards for grocery stores, and so on. The Amazon.com Visa does this, offering 5% rewards for purchases from Amazon, but 1% from everything else.
Calculating this over the course of a credit card bill can take time. You have to go through each expense, decide what category it’s in, then multiply it by the correct factor to see how much you’re getting in rewards.
One way to simplify this is to sample. Simply highlight every third or fourth item on your bill and use only those for comparison. For cards that offer a straight percentage regardless of purchase type, you just add up those highlighted purchases and multiply. For cards that offer different rewards levels depending on what type of purchase it is, you have a much smaller pool to evaluate. This will provide a pretty good indicator of which card is right for you with a lot less effort.
What card did I choose?
Unsurprisingly, I decided that the Capital One Venture Rewards Credit Card was not a good fit for how I spend money. I wasn’t confident that having my rewards tied to that program would benefit me over the long term, as I’m not sure what my travel outlook is like over the next year or two and I’m not sure the program won’t significantly change before I would strongly consider travel.
As for the other two, I concluded that the Amazon.com Rewards Visa was still a better fit for me for now. However, once all coronavirus restrictions are lifted, and we’re doing more things out and about, I intend to re-evaluate and suspect that a more general rewards card will be a better fit.
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