Gaming the System with Rewards Credit Cards | Mr. Money Mustache
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This video was recorded on March 29, 2017.

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Michael Douglass: Hi, Facebook Fools! I’m Michael Douglas, an analyst actuality at The Motley Fool, and I’m aing by Nathan Hamilton, one of our added analysts, and we’re activity to be talking to you today about cash-back acclaim cards, sign-up bonuses, and whatever abroad is on our mind.

Nathan Hamilton: Aggregate you charge to know.

Douglass: Exactly. Aboriginal off, afore annihilation else, abide your questions in the comments to accept your catechism answered during Q&A. Let’s get started. You’re arch up our efforts about acclaim cards. Allocution to us a little bit about why you’re accomplishing that, Nathan.

Hamilton: If you attending at the history of The Motley Fool and affectionate of what we’ve been advocates for, it’s activity adjoin Wall Street, abiding advance and extensive your retirement goals. You attending at how you adeptness your retirement goals. It comes bottomward to budgeting. It comes bottomward to saving. That has a huge appulse in accession to the acknowledgment you accomplish on your banal investments.

When you attending beyond claimed finance, you say, “Credit cards. Are banks actuality straightforward? Is there an befalling for us to be advocates?” That’s area we see the befalling in the bazaar accurately with acclaim cards, because there are aloof beneath 2,000 acclaim agenda offers on the market. The majority of bodies out there aloof don’t apperceive area to start, so we appetite to appear out and say, “Here are our picks. Actuality are our recommendations,” and do so that way.

Douglass: It makes sense. You adeptness say, “What do alternate funds and acclaim cards accept in common?” The acknowledgment is fees. We apperceive that fees are a aloft analgesic in the advance space, whether it’s alternate funds and basis funds, ETFs, all that, but additionally with acclaim cards, whether it’s interest, whether it’s the hidden fees, sign-up stuff, all that affectionate of stuff. That can accomplish a big aberration in agreement of your claimed finance. It absolutely does adjust with our array of fee-cutting aesthetics to be talking about this.

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Hamilton: If you attending at it, you hit aloft a acceptable point, there. If you attending at the adeptness of acclaim cards and fees, so you accept the adeptness to do good, so earning rewards, sign-up bonuses. That is a way to put added money into investing, maybe to booty a cheaper vacation. If you attending on the added ancillary of it, there’s the alarming side, which is accepting into debt, which — it’s absolute acceptable and accessible to do so with acclaim cards. That impedes your adeptness to save and advance and adeptness your retirement goals. We appetite to be advocates for each, for cash-back rewards and additionally allowance bodies get out of debt.

Douglass: Absolutely. With that in mind, let’s go advanced and allocution about some accepted arena rules for acclaim cards. Aboriginal off, for a acceptable acclaim card, aloof like for a acceptable aggregate else, you accept to accept a appealing acceptable acclaim score.

Hamilton: To be aggressive to get some of the added accepted offers on the market, about you’re activity to accept what they accede acceptable credit. About with acceptable credit, you’re activity to be [in the] aerial 600s and aloft on your FICO score. As you attending at it, the boilerplate American is aloof beneath 700 depending aloft what analysis you attending at. Some say 699. Some say 690.

We can about accept it’s appropriate about that aerial 600s, which it says, boilerplate on average, Americans will authorize for some of the aloft offers on the market. As you attending at it, of course, as your acclaim account improves, you’re activity to accept admission to added exceptional offers, or bigger sign-up bonuses. There’s added credibility for your approved purchases. Aloof added advantageous as you move up the FICO account scale.

Douglass: Makes sense. Let’s go advanced and additionally allocution about some of the don’ts, here; so, do accept a acceptable acclaim score. Don’t anticipate about signing up for a new acclaim agenda if you’ve already got a lot of acclaim agenda debt, for example.

Hamilton: Today we’re absorption somewhat on cash-back acclaim cards because it’s an absorbing affair for abounding readers, but you’ve got to attending at it, aback does it accomplish faculty and aback doesn’t it accomplish sense, because as I mentioned before, acclaim cards are convenient. It is accessible if you don’t watch your affairs to get added into debt. It doesn’t accomplish faculty to earn, say, 2% aback on a cash-back agenda and acquire absorption at 20%. That’s a accident proposition. Ultimately, you’ve got to attending at it — there’s two situations. This may actuate what array of acclaim agenda you go for. Attending at it this way. I’ve got acclaim agenda debt, and I’m activity to be accustomed a antithesis and incurring absorption charges. Cash-back cards aren’t activity to accomplish faculty for those types of agenda holders. There are offers on the market, 0% intro, APR cards or antithesis alteration cards. Those are the acceptable options. Focus there.

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Don’t so abundant attending at the aperitive or affliction sign-up bonuses that are agitative aback you attending at them, but it may not be the appropriate agenda for you. On the added hand, on the added ancillary of the spectrum, you’ve got bodies that are about advantageous off their balances like clockwork anniversary month. They don’t acquire absorption charges, and they autumn the abounding bulk of the cash-back rewards. For those people, it does accomplish faculty to attending at the cash-back cards. Biking cards are additionally options as well.

Douglass: Cool. Let’s additionally allocution about…again, actuality at The Motley Fool, we’re absolutely anxious about fees. Let’s allocution about anniversary fees for a minute, because you see with acclaim cards, sometimes those absolutely advantageous cash-back bonuses appear with anniversary fees. What’s your accepted faculty of that? What’s the appropriate call, here? You adeptness get — I’m aloof authoritative this up — $500 banknote back, but you’ve got a $100 anniversary fee. Does that accomplish added faculty than another? Advice us. Walk us through that calculus a little bit.

Hamilton: You’ve got to run your account numbers. That’s the aboriginal thing, so it’s activity to depend aloft anniversary person’s situation. I would adventure a assumption in our recommendations by us against this, but I would adventure a assumption that bodies are activity to be bigger off with either a no anniversary fee acclaim agenda or a low anniversary fee acclaim card.

Douglass: $49 a year, or article like that.

Hamilton: Yeah. There are a cardinal of cards on the market, abounding that are no anniversary fees, so there are acceptable options out there. There are abounding that are beneath $100. Again you go to the exceptional acclaim cards that crave the aerial FICO scores, accomplished credit. You’ve got to be mid 700s and aloft to alike alpha condoning for them.

Essentially, in those scenarios, you may be advantageous $400-$500, but if you’ve got a ample acclaim spending budget, if you’re advantageous off that antithesis anniversary ages to abstain absorption charges, you absolutely may appear out ahead, earning those bigger rewards. It does depend aloft your claimed situation, but I would say for the majority of people, and as I mentioned before, our recommendations are activity to bent against what’s a fit for best bodies that may accept maybe bashful acclaim spending budgets. That’s activity to be against no anniversary fee and low anniversary fee offerings.

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Douglass: Array of afterpiece to your boilerplate American. You talked for a minute there about alienated absorption ante or absorption charges. That’s decidedly chiefly for cash-back cards because they tend to accept appealing aerial APRs.

Hamilton: If you attending at it…it’s affectionate of funny, because with every acceptable account with a acclaim card, there’s article to accomplish up on the added side.

Douglass: There’s a accord and take.

Hamilton: There’s a fee. Absolute abundant a accord and booty with acclaim cards. No agnosticism that’s the case with cash-back cards. The boilerplate APR on a cash-back acclaim agenda is aloof about 20%. If you attending beyond the categories of biking acclaim cards, apprentice acclaim cards, points, rewards, all the assorted cards out there, that is the accomplished bulk in anniversary category. As you attending at it, sure, acclaim agenda companies are advantageous out rewards. That’s money out of their pocket. They’ve got to accomplish it up some added way.

It’s aloof the economics of the acclaim agenda businesses. As you attending at it, absorption assets abandoned is the distinct bigger disciplinarian of the acclaim agenda business model. That’s area they accomplish the majority of their revenue. Cash-back acclaim cards…if you do get into debt, you’re activity to be hitting or incurring absolute aerial absorption charges.

Douglass: Of course, area possible, you don’t absolutely appetite to be allowance the acclaim agenda aggregation out, here. You appetite to accomplish abiding that you’re advantageous off your antithesis so that you’re not allotment of that massive several billion dollar a year number.

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Hamilton: It is interesting. Alike as you’re authoritative those purchases, you’re still allowance the acclaim agenda company. It’s barefaced they charge a cut. About every transaction you’re making, they’re demography a allotment of that, so they do accomplish money off that as well.

Douglass: That sounds good. Again, activity aback to array of the boilerplate or the archetypal American — about you appetite to allotment and dice that — let’s allocution about what bodies can about apprehend acclaim card-wise. You and I accept talked about this before. It’s usually 1.5%-2% banknote aback for best purchases, or article like that. Of course, that depends on class a little bit.

Hamilton: We’ll attending at what they can expect, what best agenda holders can apprehend on the cash-back rate, and additionally on the sign-up bonus, because that is article important to it as well. On the cash-back rate, you’ve got two options. You’ve got your flat-rate cash-back cards, and again you’ve got your account class cards. Flat-rate cards, there are a cardinal on the bazaar that are no anniversary fee, cool high-quality cards from accustomed brands that are 1.5% and higher. You’re activity to cap out about 2% for some cards.

As you attending at the account class banknote back, the abject bulk for non-bonus categories is activity to be 1% about beyond the board. Aggregate abroad varies, so there are cards that activity account banknote for Amazon purchases, for gas, for groceries, for utilities, for entertainment, whatever you need. There’s MLB cards, there’s NHL cards, there’s aggregate out there for any account class purchase.

Look at it this way. If admirers are cerebration what affectionate of agenda makes faculty for me, I would attending at if you’re acceptable with managing credit, or you’re acceptable managing your budget, again attending at conceivably one to two acclaim cards. In that scenario, accomplish abiding those acclaim cards fit the majority of your budget. To me, personally, I’m a hockey guy. I adulation the NHL, but I don’t absorb a huge bulk of money on NHL.com purchases.

For me to get an NHL agenda that offers 10% banknote aback and 1% banknote aback on all added purchases…I should say 10% banknote aback on NHL.com purchases. It doesn’t absolutely accomplish faculty for my budget. I would absolutely be accident out, because I could get 1.5% or 2% for all of my purchases, so run your account numbers to see.

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Douglass: Fortunately, there are a lot of acceptable apps out there that can advice with this array of thing, like Mint, and a lot of banks absolutely accept appealing acceptable claimed accounts software too. You’re acceptable at advantageous your bills, you’re acceptable at managing your debt, but maybe you don’t apperceive absolutely area you’re spending, these sorts of things can help, and again you can say, “We banquet out a lot. Wow. We banquet out a lot.”

Hamilton: That’s area my money goes.

Douglass: Absolutely. Whatever the case may be. Let’s acquisition a agenda that aligns with that. Now, I’ve additionally apparent a lot of cards do these array of alternating things. January to March it’s grocery stories. April to June it’s restaurants. How do you accumulate clue of that array of affair to accomplish abiding that you’re befitting clue of those alternating categories, and authoritative abiding the agenda still makes the best faculty for you?

Hamilton: Generally, you’re activity to accept to opt in and actuate those cash-back categories. My alternative personally, and this may not be everybody else’s mantra, but my alternative alone is I don’t like to accept to booty added activity to chase my affairs and accumulate on clue of what account class is earning bigger banknote back. Our ratings tend to absolutely bent against cards that accept accustomed account cash-back categories instead of alternating annual categories.

If bodies are on their affairs and don’t apperception the added leg assignment of opting into categories, which is adequately accessible to do…generally acclaim agenda issuer will accelerate you an email and say, “Hey, actuate this. You’re acceptable to go.” For those people, it can accomplish sense, and the abstract may be account the squeeze, because if they’re earning 5% banknote aback on grocery purchases for the quarter, at broad clubs, if you’ve got a big account there, it absolutely can accomplish you appear out ahead.

Douglass: Sure. Of advance on the cast side, there’s the addiction to be like, “I’m activity to get 5% aback if I absorb added on blank…”

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Hamilton: I’m activity to go buy a agglomeration of being on Amazon.

Douglass: Right, which, maybe that’s not being you absolutely needed. Maybe it is being you needed, and you’ve been putting it off because you knew this was activity to appear at some point, and if so, hey, acceptable on you, but if it’s like, this affair allegedly costs $1,000, but it absolutely alone costs $900 now — that’s absolutely not a abundant way to do it.

Hamilton: I’d attending at it this way. If I were to breach bottomward a account and accord a acclaim agenda consultation, I’d attending at the top two to three categories area you absorb money, and again get a acclaim agenda or two that fits aural those categories, and let the added being aloof abatement by the wayside, acquire banknote back, whether it’s 1%, 2%, whatever the bulk is. I would say that the absolute after-effects you’re activity to accomplish from accepting that added incremental account with cash-back cards apparently isn’t that much.

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