Episode 5: The Credit Card Series: Episode 1, Part 1

This is a summary of episode 5, the first in our Credit Card Series where we introduce important aspects of credit card strategy.

Table of Contents

Is a credit card right for you?

Do you have credit card debt? If you have credit card debt or some type of debt that isn’t student loans or a house mortgage, credit cards are probably not right for you at this point. Pay off your debt first and then think about how you can structure your spend to responsibly own a credit card. We will talk about this at some point on the show for those of you looking to pay off debt.

If there’s no money in your checking, don’t charge it. The bottom line is, if you don’t have the money in your checking, don’t charge it to your credit card. Don’t go into credit card debt. It literally takes years to climb out of because of absurdly high interest rates, so you’ll just be paying for interest instead of that initial balance you had. You should always pay off your credit card before any other expenses because the interest is so high.

Credit cards are a very important tool to build credit and good financial habits if you have the discipline to do so. As musicians, we’re a pretty disciplined people, we’re just a poor people until we are settled so sometimes. Be diligent about how you strategize, using our tips to utilize these cards to the fullest!

Building your credit early will have huge payoffs later in life. There are a lot of things you won’t be able to get big loans for, like cars or houses, without a credit history. This includes credit cards, installment loans like student loans, car payments, etc.

Ask your parents if they’ll co-sign for a credit card if you’re just getting started. This is a great way to get your credit going early on in life. If you’re 18 and about to head to college, it might not be a bad idea to ask about this!

Rewards Cards only on Freeway Philharmonic!

We are specifically talking about rewards credit cards on this show. That means cards that earn you either cash back or credit card points. Our mission here at the Freeway Philharmonic is to maximize your value on your spend. Utilizing rewards credit cards is one of the most efficient ways to get you that value as long as you’re strategizing. To clarify, in this episode when we say points we mean transferable points, not the points and miles hotel and airline programs give that have to stay within that program.

What are cash-back cards?

Cash-back cards earn you money back instead of points. These cards are often fee-free and you can consider the cash back a sort of coupon you’re getting on whatever you purchase.

What are transferable credit card points?

Transferable credit card points are basically a reward currency you get for putting spend on your credit card. The points are worth varying amounts based on how you end up redeeming them, which is both a good and bad thing depending on your usage.

The transferable part comes from the ways in which you can move around and redeem the points. Major credit card issuers (Chase, Amex, Citi, Capital One, etc.) offer cards that allow you to transfer points to their partner programs. For example, in Chase’s case that includes Hyatt and Marriott hotels, and JetBlue, Southwest, United airlines, etc. Earning Chase points through a general Chase card and not through an airline- or hotel-branded Chase card means you have the flexibility to transfer those points to an airline or hotel of your choice within the transfer partners list. This is why transferable points cards are seen as a better value if you want flexibility.

What are transfer partners?

When we say transfer partners we mean hotel and airline programs. Each credit card issuer partners with different transfer partners so you can move your transferable points to one of these programs. From there, you book your travel on that specific program’s website, not the credit card issuer’s.

Each credit card has a different set of transfer partners. Chase currently has 11 airline partners, including Southwest and United, and 3 hotel partners, IHG, Marriott, and Hyatt. American Express currently has 18 airline partners, including Delta and JetBlue, and 3 hotel partners, Choice, Hilton, and Marriott.

It can be very beneficial to have different brands of cards for this increased flexibility. It can really pay off to transfer your points to a partner that’s offering a flight or hotel for way less than a competitor. You can save thousands of points this way! We’ll be going over how to search for the lowest rate here and on our Youtube channel in the future!

Note that you can never reverse a points transfer, like converting Hilton points back to flexible Amex points, so it’s essential to be sure of your plan before finalizing!

What are non-transferable points and miles?

Non-transferable points/miles cards would be something like a brand-specific credit card, where you’re only earning miles on that program for free future flights/stays and perks. Some of these branded cards DO actually allow you to transfer the points out but we highly recommend NOT doing that because you’re getting the most value by using the card for that brand. We just have to mention it in case people are confused when they see, for instance, their Hyatt-branded card allows transfers to airline programs. Don’t do it! Love the one you’re with and keep your points within the Hyatt brand for maximum value!

How do you earn points or miles with your credit card?

There are many ways to earn points/miles. You can get them via:

Sign-up bonuses
General Spending
Portal Spend
Referrals
And when you have an American Express points-earning card, Rakuten.

Reasons to get a cash-back card:

Easier to get if you have little to no credit history.
Spending categories tend to be more generalized and therefore will capture more of your typical spend.
Tend to be fee-free or low annual fee cards.
Some can be paired with points-earning cards from the same family so you can convert the cash-back to points, resulting in a better redemption.
If you have certain categories that you know you won’t be able to get more than 1-2 points per dollar for, cash-back might be better

Are annual fee credit cards the devil?

These credit card fees are not Satan incarnate, but they are not always right for every situation. We have several, so let’s talk about ‘em. Annual fees are typically attached to cards that offer higher value than no-fee cards.

If you feel you can offset the cost of the annual fee with the benefits you gain from the card, you should look into these cards to maximize your spend! Choose the ones you know you can get the most value out of! Start with the lower fee cards and see if you can maximize the benefits of it before you decide to take on a higher fee credit card. Low-fee cards like the Chase Sapphire Preferred or an airline-specific card like the United Explorer card (both under $100/year) offer more benefits than their fee-free relatives (the Chase Freedom cards or United Gateway card) but the no-fee cards also offer benefits you should consider!

Reasons to get an annual fee points-earning card:

Typically a higher fee means better benefits all around. It can be easy to make back the annual fee in said benefits, thus making it an easy addition to your portfolio.

Annual fee cards are typically points-earning, which means they can be a greater value than cash-back cards because their redemption rate is not fixed. The savvier you are at redeeming points for travel, the more value each point has.
Some come with annual travel credits or rebates, getting you more travel at little to no cost if you strategize it well.
They usually come with higher rewards earning on each category as compared to fee-free cards.
Some come with instant hotel or airline status, thus creating a more comfortable experience and earning you free travel faster.
Travel protections are built into the card so when something goes wrong, you’re more likely to be compensated.
They typically come with much larger sign-up bonuses so you can get a lot of free travel once you hit the required spend.

How do you strategize to get the most out of your points?

Aim for a card that earns rewards on the things you spend the most money on! The things we musicians spend the most on apart from instruments are travel to auditions, gigs, teaching either via air or driving, lodging like hotels/AIRBNBs, food, and rent. A lot of bank websites have a pie chart you can see your spending categories for the year if you’re unsure where most of your money goes. You can also get a budgeting app that pulls that data in from all your accounts for a seamless look at your finances.
If you like the flexibility to go with the lowest redemption rate across several brands, a general rewards credit card would be a better option than an airline- or hotel-specific credit card.
Consider your main methods of travel. What airline or hotel chain do you like, if any? Is your airport a hub for a certain airline? If, as in my case, your employer only puts you up in a specific hotel chain, then it’s wise to get that hotel-branded credit card to maximize status and points earning!
If you spend a lot on gas, consider a card that offers cash back on gas stations from time to time. If you have to dine out a lot, consider a card that earns you points on groceries or restaurants.
Spend on specific categories your card maximizes. One of the big goals is to have a broad range of categories your card earns more than 1% or 1 point per dollar back on.

Once you have your cards, make sure you have a system you can reference for when to use each of them to get the most value back. We hate spending on the wrong card for certain categories. You can miss out on a LOT of free future travel by doing this, so make sure to have the categories saved on your phone for quick reference if you have more than one card.