How to Optimize Credit Card Rewards

 [Updated September 2016]

For most individuals who are  not hardcore business travelers, credit card spend and new account bonuses will be the primary way that you accumulate points and rewards. Before I dive into the cards I use, let me start by sharing a little bit about my spending habits. I spend ~$40,000/year on credit cards and about 75% of the spend is restaurants, travel and Amazon. I do spend about $3500/year on gas. I don't spend much at grocery stores as I mostly use Google Shopping Express or Instacart from Costco or Safeway. If I spent a lot at grocery stores, I would consider getting the American Express Blue Cash Preferred Card (6% at grocery stores) or the Bank Americard Cash Rewards (no fee, 3.5% on groceries if you are a  Platinum Honors banking customer).

So let's dive into what I have in my wallet:

• Chase Sapphire Reserve - $450 annual fee, earns 3 ultimate reward points for every dollar spent on restaurants (including Postmates) and travel (including Uber) as well as 1 point for all other spend. There are two reasons why I keep this card. Ultimate reward points are very flexible - I transfer them 1:1 to United, Southwest and Hyatt. There are many other transfer options (including Singapore Airlines and British Airways which are great for booking international reward tickets). The second reason why I keep the card is because you can combine points earned by Chase Freedom and Chase Freedom Unlimited into the more valuable ultimate reward points on your Sapphire. This is a really nice boost which I'll explain shortly. The minimum value that I will redeem an ultimate reward point is 1.5 cents per point (and I can usually get more value than that with international travel). That means that Chase Sapphire earns a minimum of 4.5% cash back on restaurants and travel which are the only categories where I use this card. Note, you get $300 in airline credits per year which drop the annual fee down to $150/year. 
• Chase Freedom - No annual fee, earns 1 point for all spending and 5 points for spending in a specific category every quarter that rotates. For example, one quarter might be 5 points for every dollar spent at gas stations or restaurants or Amazon. The limit on these 5 point categories is 7,500 points per quarter. When combined with Chase Sapphire, the 5 ultimate reward points per dollar spent is a minimum of 7.5% cash back when used in a bonus category. That's HUGE! I max out the bonus category every quarter (and my wife has her own card so she can also earn the max bonus).
• Chase Freedom Unlimited - No annual fee, earns 1.5 points for all spending. When combined with Chase Sapphire, these points translate into 2.25% rewards. As of 9/16, this has replaced my Fidelity card.
• Costco Anywhere Card by Citi - No annual fee with Costco membership, earns 4% cash back on gas, 3% on restaurants and travel, 2% at Costco, 1% everywhere else. I only use this card for gas (unless gas is the Chase Freedom bonus category) and Costco. Cash back comes in the form of a rebate check at the end of the year. 

So, to quickly recap. Before I make a purchase, I go through this decision tree:

• If the purchase is in a bonus category for Chase Freedom (and I have not hit the bonus limit yet), then I use Chase Freedom. 
• If not, then I use Sapphire Reserve if it is a restaurant or travel, Citi Costco for gas purchases and then Chase Freedom Unlimited for everything else.

Note: Before you sign up for ANY of these cards. Please google the name of the card + "new account bonus". For clicking a random affiliate link, you can get a nice sign up bonus. 

Phew, now that I've covered cards that I currently use. I'll quickly cover cards that I've had in the past:

• Citi Forward - I loved this card. 5% cash back on Amazon and restaurants with no reward limits. Unfortunately, they stopped issuing it and then degraded the rewards. It was great while it lasted.
• Fidelity Rewards Visa - No annual fee, earns 2% cash back on all purchases. I used to use this card for everything that didn't fit into a bonus category. Now I use the Chase Freedom Unlimited.
• Starwood American Express - If you are a hardcore business traveler that stays at Starwoods, this card is fantastic. You get 2 starpoints for every dollar spent at Starwood Hotels / Restaurants and 1 starpoint on everything else. You also get 2 stays and 5 nights credit toward earning status every year. I had this card while at McKinsey, but I don't stay at enough Starwood Hotels anymore to justify the $95 annual fee.
• Delta, American Airlines, United cards - I've had them all at one point or another. None of them are worth using (though the new account bonuses have been really nice). Chase Sapphire is much more flexible for earning and redeeming rewards.

One more quick note. The best new account bonuses for credit cards have been the American Express Platinum 100,000 membership rewards points, the Chase Sapphire 60,000 ultimate reward points and Hyatt's two free nights at any Hyatt Hotel (Maldives is the best redemption). I no longer churn credit cards for new account bonuses as it is not worth the headache. If you want to learn about it, here is an article on the topic and here is a site that has current bonuses. Note, I don't get paid for any of these links and I just choose to link to Nerd Wallet because their site has a clean UX and the founder is a cool guy.

Next: How to Optimize Airline Rewards.

​Questions? Comments? Tweet me @RetireOnRewards.