Today we’re exploring a topic that excites many and mystifies others:Credit Cards. Learn how to make your credit cards work for you! From understanding the perks to making sense of rewards, we’ll guide you through the ins and outs of maximizing your credit card benefits. Whether you’re a seasoned cardholder or just starting out, this episode is packed with insights to help you leverage your credit cards effectively. Mary Beth and Neela give insight into how they use their credit cards to maximize the offered benefits. Let’s jump right in and decode the credit cards and ways to be a strategic credit card holder.

What You’ll Learn in this Episode

• How to figure out the best credit card for you based on your lifestyle
• Understanding the different types of rewards and where they can fit into your plan
• The best way to balance annual fees and rewards
• How many credit cards should you have?
• If you are paired up, how to approach the credit card game with your significant other
• Some good practices to follow to avoid hits on your credit score
• A great way to maximize the benefits from the cards you currently have
• What positively and negatively impacts your credit score (and how it all works)
• A few tools and resources to use when exploring the credit card game
• The best way to utilize credit cards responsibly

Stay Connected

• Connect with Mary Beth on Twitter, Instagram, and on LinkedIn
• Connect with Neela on Twitter, Instagram, and on LinkedIn
• Join the Abacus community by connecting with us on Facebook, Twitter, Instagram, and on LinkedIn

Transcript of the Episode

Mary Beth [00:00:14]:

Hey there. Welcome to the If Money Were Easy Podcast, the show where we teach you how to expand what’s possible with your money. We’re your hosts, Mary Beth Storjohann 

Neela [00:00:24]:

and Neela Hummel, 

Mary Beth [00:00:25]:

Certified Financial Planners and co CEO’s of Abacus Wealth Partners. Today on the show, we’re talking about how to win the credit card game. Hi, Neela. 

Neela [00:00:37]:

Hi, Mary Beth. 

Mary Beth [00:00:38]:

How’s it going? 

Neela [00:00:39]:

I’m just chomping at the bit for this one. 

Mary Beth [00:00:41]:

This is your favorite. 

Neela [00:00:42]:

So fun. 

Mary Beth [00:00:42]:

This is your favorite. Neela is a credit card queen. So I surround myself with credit card queens I think.

Neela [00:00:49]:

You have a type, you have a type.

Mary Beth [00:00:50]:

I do have a type. I do have a type. And I learn all of my skills from y’all. So I do have some experiences and thoughts, but I definitely. 

Neela [00:01:00]:

And we also have a lot of advisors in here who just, they love this stuff. 

Mary Beth [00:01:03]:

They  love it!

Neela [00:01:05]:

And it changes day by day. And so we’re not here to give specific credit card recommendations, but more how to approach credit cards. What role do they play in your financial life, and how do you get paid for spending? 

Mary Beth [00:01:18]:

Yes. When you said, we have a lot of advisors here who are interested in this, it makes me think of how we say that spreadsheets are our hobby. I would say that credit card rewards are actually hobbies for some of our folks. 

Neela [00:01:31]:

That’s when, you know, you’re like, oh, we’ve hired people who are very passionate about their work. This is how they relax on a Saturday night. 

Mary Beth [00:01:37]:

That’s true. Okay, so where does one start with a credit card approach to financial planning?

Neela [00:01:46]:

So credit cards have just become so much more prevalent in today’s day and age. And I think as consumers, we just need to kind of all accept the fact that all of the goods and services that we buy are probably two to 3% more expensive than they would be because of how credit cards are in our world that businesses count on using credit cards, there are costs associated with utilizing credit cards. And so as a society, credit card usage has gone up compared to maybe our parents generation, certainly our grandparents generation, where it was very common to just pay cash for everything. 

Mary Beth [00:02:24]:

Cash and then, yes, then checks and then debit card. And now we’re at credit. 

Neela [00:02:28]:

Credit. 

Mary Beth [00:02:29]:

Yes. Sometimes that 3% charge is shared with you. That is what you were paying for separately. Other times, it trapped into the goods or service that you were purchasing. 

Neela [00:02:38]:

And I think where we think there’s a lot of opportunity here is for the people who could pay in cash but are opting to use credit cards for a few reasons. One, because you can get some great rewards from them. Two, it can help you improve your credit, which means you’re going to save more money on auto loans and mortgages, etcetera. And so we’re thinking about people who are not living beyond your means. You are paying off your credit cards in full every single month. And so you’re basically the people that the credit card companies hate.

Mary Beth [00:03:16]:

Like us. 

Neela [00:03:17]:

Yes. 

Mary Beth [00:03:17]:

Okay. 

Neela [00:03:18]:

Yeah. Because why do they hate you? Because if you carry a balance, you’re paying the bananas interest that they charge you, which is like 30%. 

Mary Beth [00:03:29]:

That’s what they want. 

Neela [00:03:30]:

That’s what they want. 

Mary Beth [00:03:31]:

They want you to pay that 30%. And so, yes, the strategies we are talking about today are for those that can pay cash. Disclaimer if you’re in the habit or need to carry a balance, it is not in your best interest to use a maximization strategy unless you are actively working on paying them down. If you’re actively working on paying down your credit card debt, in that case, it does make sense to do balance transfers or handle 0% interest rate transfers in some cases, but otherwise. Stop listening now. 

Neela [00:03:58]:

Stop listening now, immediately. We just want to get you out of credit card debt. 

Mary Beth [00:04:03]:

Yes. 

Neela [00:04:03]:

So where do you begin for something like this? 

Mary Beth [00:04:07]:

The place I begin is to understand my lifestyle or for a client. What is your lifestyle? What is important to you? What are you spending on? And so there are a variety of credit card rewards programs out there. And so the first order of business is, what is most important to you? Are you somebody who wants to use the travel perks? Are you somebody who wants a specific airline, hotel? Do you want just the cash back? And that’s where I would say I would start, is, what’s your lifestyle? And what benefits do you value most from a card, or would you value most and then start to narrow it down from there? How about you? 

Neela [00:04:43]:

Yeah, I’d say look in a mirror first, because the worst thing in the world is that you’re taking on a credit card, and then you start spending all this money that you weren’t planning on spending on things that you weren’t planning on purchasing. And so really figuring out, okay, what are the things that my family spends money on? Is it travel? Is it restaurants? Is it groceries? What are the things that you feel like you all are really prioritizing? And what are the things that you value the most? If you really like getting cash back, then you should probably look at a cash back credit card. If you spend most of your discretionary income on restaurants, then perhaps picking a card that has a higher cashback rating on restaurants is a good one that fits. If you love to travel, you want to make sure that you are getting a credit card with a 0% foreign transaction fee, and that might also reward those purchases. It’s like, who are you, where are you spending your money on and what do you value? Because it’s very personal. There’s like a dollar value to all of these rewards, but there’s a personal value to how much do you value? Value them. 

Mary Beth [00:05:53]:

Yes. I love that. So from there, I typically go into a rabbit hole of what are the options available to me. So if I’ve narrowed it down and it’s travel. Yeah, there is the broad travel category. Right. Then you want the 0% foreign transaction fees, but there’s also the specific of do you favor a certain airline? Do you favor status on said airlines? Same thing with a hotel. Are there certain hotels that you are working to have status at or that you would like to have status at? So understanding, if it’s travel, for example, what specifically about travel are you looking for and what are you hoping to accomplish? Yeah, because that’s where you’re going to go down a bit of a rabbit hole to understand what are the travel cards out there, what are the airline cards out there, what are the hotel cards that are out there and what are the benefits that come with each? 

Neela [00:06:45]:

Yeah, I’m glad you mentioned travel because that is probably the biggest umbrella and the biggest tent and there is so much under there. And you can go through and again, ascribe a certain dollar amount to them. But there are credit cards that give you miles. Okay, great. Do you like having miles to book trips? Some contribute to status where you might get automatically upgrade to business class. Ooh, that’s exciting. Is that something you really value? What about travel where you can get access to certain lounges? Is that something that’s important to you? You mentioned hotel stays, being able to get to stay places, will that help you reach your travel goals sooner? And so under the travel umbrella, if that is a perk that you want, what specifically do you value and what works? Well, there’s also plenty of cards that have companion certificates where you buy a ticket and you get to bring somebody with you. There’s a lot out there. 

Mary Beth [00:07:40]:

Right, and I would say the thing to keep in mind typically is you can go to the source of an airline or a hotel and understand what their specific credit card options are and the rewards that come with those. Or you can have a more general travel credit card that might not have as high of a conversion because it’s so broad. The points might not be as valuable as it might be if you want direct, but you have more options and that you can then transfer your points to half a dozen hotel options where your points can then transfer into those hotel points and you can then use them through the program. Same thing with airline, you can transfer them into airline miles. And the rewards might not be the same as if you had gone direct to a specific airline or to a specific hotel company, but by opting for those options, you have more flexibility. So the rewards might not be as great, but you have more options. And so if you value that, you still get something, just not that pinpoint it. Maximize for one source.

Neela [00:08:36]:

Yeah. And we should say that there are so many different types of cards with so many different types of benefits. Those lovely people at the credit card companies are really just trying to meet you where you are and support you in your goals. And also, again, they all have different values. I mean, I’ve seen credit cards where they match a percentage cash back and they put it into a college 529 account. That might work. You might not get the best ROI, return on investment, for those points, but hey, maybe it makes you feel really good. Okay, so figuring out the things that you value, where you’re spending your money on, and have a plan. One thing to be very aware of with credit cards, and particularly if you have multiple credit cards, is balancing out the annual fees with the perks that might come with it. So there are plenty of cards that are fee free and that offer good benefits. There are other cards that offer even better benefits, but you might pay an annual fee, and only by knowing where you spend your money will you be able to determine if those annual fees are worth it.

Mary Beth [00:09:44]:

Correct. This is where you get the bronze, silver, gold, platinum, all of these tiers. They’re going to scale up in terms of the benefits that come in the annual fee. And you need to do the calculation yourself. Is it worth it to you to pay that fee? Are you going to maximize that benefit and pay for that, or is it not worth it? It’s a personal choice. That’s why it’s a personal financial plan. But you know, don’t be inclined to go for that platinum most extreme card if you’re not going to maximize the benefits or if they’re just not something that you’re very much interested in. So it might sound fancy, it might seem great, but if you’re not actually going to use the benefit, it’s not worth it. There’s other reasonable options out there for you. So looking at the fine print, you also want to understand there’s going to be some sort of reward system. There’s going to be sign on bonuses for when you engage it. There’s also going to be the annual benefits as well, which many cards these days pay for, like TSA pre check. Or you can pick a certain hotel and they’ll reimburse you $50 based on the brand, whatever it is. You can add all of those things up to make sure that you’re maximizing and utilizing it, but make sure that you are looking and tiering those things out to figure out what you’ll maximize and what you likely won’t based on your lifestyle. 

Neela [00:10:58]:

Right. One thing that I get asked a lot is what is the overall credit card strategy? And I think we talked about this in another podcast, and how many credit cards should you even have? 

Mary Beth [00:11:08]:

Oh yes, we did talk about that. This is one of our very first ones. 

Neela [00:11:11]:

They get a very personal decision. 

Mary Beth [00:11:13]:

Which mine has slowly creeped up since that podcast, by the way. 

Neela [00:11:15]:

And mine is creep down. We’ve just converted that somewhere in the middle. But this is very personal. So if you follow some of the sites where you’ve got people who are really playing the credit card game, most of them probably have somewhere between like eight to 15 credit cards. That is exhausting for so many people. I realize I hit a limit when I gave my husband a new credit card with a Post-It of like, if this is what you’re spending, you need to use this card. If this is what you’re spending, you need to use this card. And then I was like, okay, I’ve gone too far. This is too far. 

Mary Beth [00:11:47]:

Nobody has this kind of time. 

Neela [00:11:49]:

Nobody’s got this kind of time. It was like stressful for him, stressful for me to see the charges that went to the wrong place. And so I was like, okay, this is not working. But for most people, I like to recommend that they have two cards. Some people might have a few more if they really can juggle the usage, and it’s not disruptive. But I like to say two instead of just one in the event that card gets stolen or it gets declined because you’re overseas and the credit card didn’t recognize it. But having two cards is really helpful. And for a lot of people, having one card, that’s the heavy lifter card. And then like, more of a backup card is really helpful. But I’d also say you got to make sure that you are using the secondary card, because if you just have this open credit card that you never have charges on, many credit card companies will shut those down if they see long periods of inactivity. 

Mary Beth [00:12:40]:

Yeah, I think making sure that you have a strategy with your partner, if you have one, and that you are aligned and how the credit cards are being utilized, and understanding that maybe jointly you have two cards and maybe you individually have one that you each own individually so that you can buy gifts or have some sort of flexibility and some sort of privacy in terms of, you know, holidays or certain things. But whatever that works out for your family, making sure that you’re clear and united on what the strategy is for those things. So we have the same thing. We have a one joint one, and we have a couple travel ones. Some strategy now for what goes on, which. But if I’m being transparent, most of that strategy is in my mind, and I control all of the points in our house and they transfer them to, if Brian is involved, it probably all would go to cash. But I’m constantly, like, maximizing for hotels and airlines, different areas. So I let him know. You want to make sure you tell the person what’s going on doesn’t necessarily mean that they’re going to manage it with you, but you can probably tell them 

Neela [00:13:41]:

Set them up for success. Yes. I’m glad you mentioned individual versus joint ownership. You know, we’ve talked about financial abuse and that it is also possible to get stuck with somebody else’s credit card debt and that generally, like, if you are the owner of that credit card, you are responsible for the debt. And so if you do have a spouse and maybe things aren’t going great, be mindful of that. That if you are the main user, that is considered your debt. 

Mary Beth [00:14:15]:

Yes. In California, you’re both responsible. If it’s joint, even if it’s individual, you’re both responsible in California. 

Neela [00:14:22]:

Right. 

Mary Beth [00:14:22]:

I think it’s important in terms of the individual credit cards, though, in which we’ve talked about multiple times on the podcast as women, women couldn’t have credit cards until 1974. Right. So I’m not encouraging you to get a credit card, but from that independence, like the financial abuse, the empowerment perspective, assuming you have the right habits in place, giving yourself that individual option to have should you need it is important, in my opinion. There was a time when we couldn’t have credit cards, and so take advantage of the option doesn’t necessarily mean you need to spend it. But making sure that you do have the access from an individual level is always important in my perspective. 

Neela [00:15:02]:

It can be a major emergency lever to pull should you need it. It’s expensive credit, but it’s still there. And it’s almost like in the event that things are extreme, it at least gives you an option. And I think that’s a really good point from an independent standpoint. I think we should also mention, in general, good credit card hygiene. Our credit system is so weird in the United States that closing down a credit card hurts your credit. 

Mary Beth [00:15:31]:

It does hurt your credit. It’s ridiculous. 

Neela [00:15:34]:

It’s crazy. 

Mary Beth [00:15:35]:

But it does. It does. But why does it hurt your credit? 

Neela [00:15:37]:

Because essentially you have something called a credit utilization amount, which is basically like, how much money are people willing to let you spend that you are not spending? So if you have like a $10,000 limit across two cards, each one has a $5,000 limit, and you’re like, you know, I’m going to be a responsible credit card user and I’m going to shut one of those credit cards down. So I only have $5,000 available. Well, what the credit bureaus see, and again, there’s several credit bureaus, they’re like, ooh, this person, she’s only able to borrow up to $5,000. If you charge on that card, even if you are paying it in full every month, the amount, the percentage of your credit utilization that you are using is higher. So if you’re putting $2,000 a month on your credit card, you are using 20% if you have a $10,000 credit utilization and it’s 40% if it’s 5000. And so that actually makes you look like a riskier borrower. And so credit card companies don’t like that. Now, the inverse is also true in that if you have good credit, if you have done a lot of on time payments, you can ask companies to increase your credit utilization amount.

Neela [00:16:51]:

And so you say, hey, I’ve been such a good user, I want to do these other things. Can you increase my credit amount? If you continue to be like a good credit card steward, they will increase it over time. Disclaimer that that may cause a ping on your credit report. Every time you apply for a credit card, it hits your credit report, which is also a negative on your credit. 

Mary Beth [00:17:12]:

So in that case though, unique planning strategy or question, would you advise somebody to call and ask for an increased limit on their credit card, or knowing that they’re looking for an increased limit and working to maximize credit card benefits, would you have them apply for a different card and potentially have some sort of the sign on rewards or other benefits available to them. 

Neela [00:17:32]:

What a great question, Mary Beth, thank you for setting that one up. I think this depends, how long have you had that credit card? What are the benefits of that credit card? If that credit card really meets your needs, stick with them and see if you can increase it. If you’re kind of lukewarm on that credit card, I think you have two really great options. One, you can either apply for a new card and get one of those really sweet onboarding welcome offers. Or if you potentially have like another card in the same family, sometimes they will upgrade you and you might even get a bonus if you stay within that same credit card family. So again, it comes back to don’t just be duped by the welcome offers. Think about how you’re going to be using that card over the long term. Many credit card companies have gotten very hip to what they see as churning, which is basically you’re just like signing up for a credit card, getting the bonus offer, and then shutting that credit card down to get the next one. A lot of them have really restricted those because they do that to get you in the door so that you’re a long term client. 

Mary Beth [00:18:34]:

Right. 

Neela [00:18:34]:

So just be mindful of getting too duped by the juicy welcome offers and make sure that long term, the card is the right fit for you.

Mary Beth [00:18:42]:

Yep. How often would you say that somebody should evaluate their credit card strategy? Not how often you do, but… 

Neela [00:18:50]:

Yeah. Thank you. 

Mary Beth [00:18:50]:

Yes. 

Neela [00:18:51]:

Asking for a friend, I think a reasonable human being, again, not in this room with me, but I think in general, every six months is good. If that seems insane, look, every year, right. Most credit card companies won’t touch your credit utilization ratio in less than six months. So if you’re really trying to improve your credit and work on your strategy, having that six months is a good mark. But again, an annual is great and you can do it at the same time that you’re looking at your annual credit report, just to make sure that there’s no surprises or anything that pops up. So if you did it once a year, you’re in great shape. 

Mary Beth [00:19:26]:

Yeah, I usually say once a year. I think that’s probably best only because you run the risk of churning. If you are new, there’s a bit of setting and forgetting. It can be active in it maybe for six to 18 months, and then you probably have to chill because you have to let the rewards compound and pay for itself, depending on your spending, how many sign on bonuses you can take advantage of. 

Neela [00:19:47]:

Annual is nice and reasonable. 

Mary Beth [00:19:49]:

Annual seems reasonable to me again, but I am newer to the game. Neela is an experienced veteran in this area. 

Neela [00:19:57]:

I did get my first credit card freshman year of college and just over time started just reaching out, you know, like paying them on time.

Mary Beth [00:20:05]:

Did you get the pizza? Like, did you get the pizza with it? 

Neela [00:20:07]:

You know, I got. I got a hideous shirt, I’m sure. 

Mary Beth [00:20:09]:

You got the shirt. Yeah, the shirt. 

Neela [00:20:12]:

They used to let anybody sign up for a credit card. 

Mary Beth [00:20:14]:

They really did. 

Neela [00:20:15]:

But we should also say that on a lot of the sites, like the Nerd Wallets and The Points Guy, those are two of my favorite sites to investigate. They’ll really help you figure out, okay, what does your credit look like? What are some of the rewards that you value? Because what you definitely don’t want to do is apply for cards that you won’t get approved for because that definitely hurts your, your credit report.

Mary Beth [00:20:37]:

Yeah, I would say if you’re looking to make this a hobby, The Points Guy, that is education. It is a masterclass, and there are so many rabbit holes that you could just go down on that site. So The Points Guy has been around for years and there is some great content there, literally, however you want to slice and dice your credit cards, I think that website will really help you. 

Neela [00:20:57]:

But I think at the end of the day, making sure that you’re using credit cards responsibly, you’re keeping your spending percentage to less than 30% of your overall available credit, and from there, the rest is gravy, then you’re really just like, optimizing. But as long as you’re being a responsible credit user and that you let credit cards be an asset, it’s definitely easier to freeze a credit card than it is to try and get money put back into your debit card. So know that credit cards have some really nice perks. They’ve got some great insurance coverages. If you have, like, items that are stolen, like, there’s so much fine print in credit cards that make them a really great tool. And so in general, I never use my debit card unless I’m taking money out of an ATM.

Mary Beth [00:21:44]:

Same 

Neela [00:21:45]:

Everything goes through a credit card because I want to get the points. And I know that if something happens, if that card got stolen or if there was something else, I actually have a lot more protections from the credit cards than I do from my bank debit card. 

Mary Beth [00:21:58]:

Yeah, I would say if you have the opportunity and you are somebody that has the cash, you have the abilities to pay your credit card off over time. If you’re not maximizing your credit cards in some way, it’s a missed opportunity. There are benefits that you can maximize for you. That is why there are so many blogs about this. Because if you have the ability and you know you’re paying your bills on time, you are leaving money and opportunities on the table in some way. Maybe it’s not worth your time, depending on what those rewards are, but it is a missed financial opportunity if you’re not working to maximize those to your benefit. 

Neela [00:22:28]:

I’m glad you said that, because at the very least, if this makes you crazy, just pick a cashback credit card, right? And you literally just get cash back.

Mary Beth [00:22:35]:

Just get cash back. Why not? 

Neela [00:22:36]:

It might not give you the best rate, but just like, do that. Find whatever credit card you have, find the cashback version of it, and just sit back and collect. Don’t do anything. 

Mary Beth [00:22:43]:

That is probably the thing when I have conversations, I’m like, you’re not. You’re not.

Neela [00:22:49]:

Just get something. 

Mary Beth [00:22:51]:

But like, why not? Why, like, you should be. Yeah. Especially for those that travel. For those that travel that aren’t doing it is always very interesting to me. But many people are not huge financial nerds like we are. And so some people, like, I think the general population is just like, here’s my credit card. I pay it off. I use it responsibly. What else am I supposed to do with this thing? 

Neela [00:23:08]:

And keep it simple, right? The strategy can be very, very, very simple. And I think judging by the number of texts I get from extended family members around credit cards, I’m like, this is something people also don’t really talk about, but have something, just take some advantage of it. 

Mary Beth [00:23:22]:

Yes. 

Neela [00:23:23]:

If you can. 

Mary Beth [00:23:24]:

All right, that’s what we got for you. Good luck. 

Neela [00:23:27]:

Thanks, everyone. 

Mary Beth [00:23:29]:

Financial knowledge is for everyone. If you enjoyed today’s episode of If Money Were Easy and you’re looking for more tools and resources to expand what’s possible with your money, head to www.learnwithabacus.com Abacus Wealth Partners elearning platform, offering a variety of courses to empower you in your financial life.

Mary Beth [00:24:12]:

Abacus Wealth Partners is an SEC registered investment advisor. SEC registration does not constitute an endorsement of Abacus Wealth Partners by the SEC, nor does it indicate that Abacus Wealth Partners has attained a particular level of skill or ability. This material prepared by Abacus Wealth Partners is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security strategy or investment product. Opinions expressed by Abacus Wealth Partners are based on economic or market conditions at the time this material was written. Facts presented have been obtained from sources believed to be reliable. Abacus Wealth Partners, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Abacus Wealth Partners does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. No investor should assume that future performance will be profitable or equal either the previous reflected performance or that of the reference benchmarks. The historical performance results of the comparative benchmark do not reflect the deduction of transaction and custodial charges or the deduction of an investment management fee, the incurrence of which would decrease indicated historical performance. The S&P index includes 500 leading companies in the US and is widely regarded as the best single gauge of large cap US equities. The holdings and performance of Abacus Wealth Partners client accounts may vary widely from those of the presented indices. Advisory services are only offered to clients or prospective clients where Abacus Wealth Partners and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Abacus Wealth Partners unless a client service agreement is in place.