Developing a secondary strategy for Credit Card Rewards Points

In previous posts about credit rewards strategies, I’ve talked about how to develop a rewards strategy, discussed why I use the Starwoods American Express and Schwab Visa as my primary cards, and talked a little bit about how I’ve earned extra SPG points buyingcoins from the U.S. Mint. Now it’s time to talk about secondary strategies for earning rewards points.

So you understand your goals and spend profile and you’ve picked a card that matches these two things, but you are thinking, “There are so many rewards programs”, you begin to wonder if you can take advantage of a few more programs. The answer is a resounding Yes! Let’s talk about secondary strategies for a minute. The way I view secondary rewards programs where it can either help contribute to an overall goal such as travel or you obtain one time bonus for things like gift cards or cash back. In other words, the credit cards that are part of your secondary strategy should include those cards with sign up bonuses. Let’s discuss a couple of examples.

I recently signed up for the American Express Rewards Plus Gold card and the Business Gold Delta Skymiles card. Both of these cards had sign up bonuses if I spend a certain amount of $ within the first 3 months of getting the card. My intentions are to fulfill the spend requirements for the sign up bonuses by ordering coins from the U.S. Mint. This way I do not have to divert any of my real spending away from my Starwords American Express card to earn those valuable SPG points.

The specific bonuses offered by the two American express cards were 30,000 skymiles and 15,000 membership rewards points. Now, in prior posts, I have alluded to the fact I am in the process of dumping all my NWA/Delta frequent flyer miles due to the massive devaluing of the program. These 30,000 miles will help me get close to having a 120,000 remaining miles to use on award travel. If I am lucky and search diligently enough, I will be able to find a perk saver business class award ticket to Asia.

In regards to the gold card and the reason for getting that, I currently have about 135,000 membership rewards points. Amex membership rewards points are similar to SPG points in that they can be converted to miles in frequent flyer programs. Additionally, if I so choose, I could convert the points to SPG points at a 3 Amex points to 1 SPG point redemption ratio. So with these 15,000 membership rewards points, I have the possibility of another 5,000 SPG points. I’m still in the process of determining if a conversion is the right way to go on this. I’ve also read that converting to Air Canda miles is another step in the right direction because of their generous award ticket policies of 2 stop-overs with one going across the Atlantic Ocean and the other going in the direction of the Pacific Ocean. My decision on which program to convert to will depend on how many SPG points I have at the end when I am trying to book my round-the-world trip and how I decide to book the travel (a bunch of one way award flights or one massive ticket).

If you can not tell, my primary goal for rewards points is travel. These two cards help me towards that goal even though after I fulfill the spend requirements for the bonus points, I will not use them again. In fact, I will probably cancel the Delta Gold Card. Additionally, I will my business Amex gold card. The reason I hold on to an Amex gold card is because I want to keep the membership rewards points and not have to spend them. So on a yearly basis, I find another Amex gold card with a sign up bonus and free annual fee the first year and I can continue to keep my membership rewards points.

Your primary goal may be cash back or you may come across an offer for an amazon giftcard or just a random $250 cashback that may have nothing to do with your primary goal at all! Maybe you have planned a big purchase at Amazon.com and could use that amazon giftcard or cashback. My suggestion is do not shy away from those opportunities. I recently applied for a chase sapphire preferred card. The bonus points being offered was 25,000 after the first purchase. I don’t even have any ties to any chase reward program, but I figured I could make use of those 25,000 points some how! This is what I mean by take advantage the opportunities. Of course if Chase approves me, I will get the bonus points, figure out the best use for them and close the card 3-11 months later. You can do a similar thing with Citi thank you points – apply for those cards that offer thank you point bonuses, cancel them in 3-6 months, apply for a different card with a thank you point bonus, and continue this process. I have even read of people applying for the same card a year or so later and getting the sign up bonus again!

Now, I will add a couple of caveats here. I caution you against applying for a large number of cards if you’re looking to get approved for a loan in the near future. Also, make sure you understand the terms for getting bonus points and if there are any annual fees involved. Typically, it is best to look for cards that are at least fee free the first year. Additionally, you do a need a decent credit score of 720+ to fully execute this strategy. These are just a couple of additional points to keep in mind.

There are many rewards points programs and credit card offers out there. Developing a secondary strategy that is geared towards your primary goal can help you realize your goal even quicker. Additionally, if you find one of those really good offers like $250 cash back or a $250 giftcard, jump on it! Sometimes it doesn’t matter if the offer helps you towards your primary goal or not if it is really good!

Feel free to leave your suggestions in the comments for your primary and secondary rewards earning strategies.

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Why I use the Starwoods Amex and Schwab Visa Cards as my primary credits cards

SPG Amexschwab visa

I have been asked the question many times, “What is the best card to use?”. Every time this question is asked of me by one of my friends I end up giving the standard answer…”It depends.” This usually leads to a longer discussion about goals and what they want out of their rewards. In my post regarding developing a rewards strategy, I tried to lay out the steps a person should consider when choosing their credit card(s). Tonite, I want to share with you what cards I use and more importantly WHY I use them.

Goals and Old Strategy…
Before I talk about the specific cards in my wallet, I think its important to understand my goals. My goal for my credit card rewards is to get a round the world airline award ticket in business class. This is a very specific goal that points me in the direction of cards that offer programs that turn points into air miles in a variety of frequent flyer programs. This is also helped me develop a specific strategy of targeting airline, hotel, and American Express point programs. Originally, I wanted to earn as many frequent flyer miles as possible. This meant that I would fly the same airline, sign up for the credit cards with bonus miles, and earn American Express and hotel points as a secondary strategy as a way of getting more air miles. The problem was that I focused on a specific airline instead of focusing on a program that was flexible and gave me options in choosing the best airline miles. It was only after I realized that the airline programs were being devalued that I knew I would have to change things up. What I wish I would have realized was the flexibility of the SPG starpoint.

What I carry currently and how it helps me….
In my wallet, I carry two credit cards that I consider to be among the best for maximizing my rewards – the Starwoods Preferred Guest (SPG) American Express Card and the Schwab Invest First Visa Card .

The SPG amex card allows you to earn 1 point per dollar spent. There is a 10,000 point sign up bonus. You can redeem SPG points for gift cards, buy flights with points, hotel stays, or you can transfer points to miles in most major (over 30) frequent flyer programs. It is these last two things that I listed that I want to discuss further. If you’re interested redeeming for a hotel room, you can do a straight award starting at 3,000 points depending on the category hotel you choose. A much better option is to look at the cash and points redemption option. At certain Starwood properties, you can get a room for a small amount of points and a reasonable price. I’ve seen awards start at $60 a night plus a couple thousand points. Looking at the big picture, this let’s your points go further and doesn’t cost you much especially when you are talking about burning 50 – 60 thousand points at a category 4,5, or 6 hotel for a few nights or paying $60-100 a night plus 3,000 points. The cash and points deal is really good. Another fringe benefit is redeeming is if you redeem for 4 nights, you can get the 5th night free. If you wanted to use this card just for hotel points, it would be a great card to use, but I want to point you in the direction of transferring points to airline miles.

With Starwoods, if you transfer 20,000 points to participating airline programs , SPG will add another 5,000 bonus miles to the transaction. This effectively turns the SPG Amex card into a 1.25 point per dollar card if you redeem in 20,000 point increments. Some will argue that cash back cards are better. I would argue that the value of travel points is when you start talking about redeeming for premium class seats on airlines. I highly recommend that you don’t use miles or points to redeem for domestic coach seats unless you urgently need seats and can’t afford to buy the tickets.

An Example Calculation
Business Class seat on NWA/DL to Taipei, Taiwan – $7167.02
Dollars to spend using average cash back rate of 2% to purchase this ticket – $358,351
Air miles required to get a saver class award ticket – 120,000 for a round trip
Starpoints required to redeem for NWA seat – 100,000
Cost for obtaining those 100,000 SPG points – A maxmium of $100,000
Return on 100,000 starpoints for a $7,167.02 premium seat – over 7%

The above example is a worst case scenario. If you have status you are earning points are a far greater rate through bonuses when you stay with at SPG hotels. Your return % could be much greater than 7%!

One other way to quickly obtain points is to purchase them. . I usually don’t recommend this, but this will help me leap frog towards my goal quicker. I can get 20,700 points for $700 or I can run $20,000 through on the Amex card and get 20,000 points. (20,000 is the max points that may be purchased in a year) It might take awhile to run 20k in expenses and it would depend on your immediate need for points. The US Mint Strategy I talked about earlier will help you quickly run expenses through.

Pitfalls of this card….
There are some pitfalls that I have chosen to live with regarding the SPG card. First, it is an American Express. AMEX is not as widely accepted as Visa or Mastercard. Second, through credit card transactions only, I get 1 point per dollar. Other cards give certain bonuses for gas and grocery purchases whereas the SPG is a straight 1 point per dollar.

How I mitigated the pitfalls
Since I realize AMEX isn’t accepted everywhere and because I have Schwab Checking, Brokerage, and Savings accounts. I decided to get the Schwab Invest First Visa card. This is a straight 2% cash back credited to the brokerage account every month. Now one of the cool things about this card is that there is no foreign transaction fees charged. So when you go overseas, you’re not stuck paying the ridiculous fee for using a credit card.

In my next credit cards post, I will talk about my secondary strategy to complement my reward programs earnings.

How to develop a rewards program strategy….

I have spent countless hours pondering this exact question and getting asked this question by many of my friends.  Many co-workers and friends alike are intrigued at the amount of time and “number” running that I have done to find the best cards and programs that will help me with my goals.  It is only when I start bringing up terms like “spend profile” do I get a really hard time. I hope with this post that I will be able to provide  insight on how to develop a rewards program strategy.

Understand your goals…

The first thing you have to do before you even start applying for credit cards is determining what your goals for the rewards you are trying to earn. Do you want to get cashback as your rewards? Do you want to bank frequent flyer miles or hotel points? Do you want to save points for a specific product like a big screen tv or computer? Most people choose cashback or some frequent traveller program. Most don’t try to earn points to redeem products because the redemption rates are very unfavorable and it usually easier to buy the product you want.  Be aware that each type of card has their own individual pitfalls so its best to look at the terms of the programs very closely.

Understand what you spend your money on…

After you know what you want to do with your rewards, you need to understand where you spend your money. Some credit cards give bonuses for gas or grocery purchases. It is important you understand this. I have coined the term spend profile. If you know that you spend the majority of your money towards gas and groceries, this will help you focus on cards that give more points or cashback for gas and grocery purchases.

Understand your current rewards programs…

Maybe you already focused in on a certain rewards program or you can project that you will be flying a certain airline a lot this year or you will be staying at a certain hotel chain many nights this year or maybe you already have miles or points built up with a certain rewards program. If this is the case, you may be interested in continuing to earn points in that program or taking advantage of a signup bonus to get your points to a certain balance. This will also be a factor in your decision process to determine which cards to apply for.

Have a primary and a secondary card…

Determine what your primary credit card will be. This is the card where most of your purchases will be charged to.  This will be the rewards program that you want to earn the most points in. Since there are always draw backs to rewards cards, your secondary card will be there to help reduce most of the drawbacks and can be used when certain situations are met. For example, say your primary card earns hotel points and your secondary card earns cashback, but has a feature that does not charge foreign transaction fees when you are overseas. You would use this secondary card when you travel overseas or when your primary card might not be accepted.

Next steps…

Once you understand your goals, develop your spend profile, factor in your current rewards program earnings, and determine your secondary needs, this will help focus your search on the “right” credit cards for you. These factors may not be weighted equally. It may be the case that you have 200,000 points in a certain program and you want to continue earning points with that program even though you may spend the majority of your purchases on gas and groceries. There will be compromises that you will have to make. You will have to decide which is more important to you. In my next post, I am going to discuss my specific credit card strategy and why I like the Starwoods Preferred Guest American Express card and the Schwab Invest First Visa Signature card.

My latest credit card arbritrage

Boxes of Coins
Boxes of Coins

I need to provide an update on my latest credit card arbitrage. About 25 days ago, one of the sites I subscribe to in my google reader showed a deal with US Mint $1 coins. Long story short, you can use your credit card to order the $1 coins at face value. So the 5,000 coins that I ordered costed me exactly $5,000. As a kicker, shipping on these coins was free! I was surprised to learn that they were delivered via next day air (Thank you uncle Sam!). Before I address the detractors, I must say there are some limitations with this deal. First, there is an order limit. For this specific series, the mint always a maximum order of 5,000 coins.  Additionally, the presidential dollar coins are limited to quantities of 500 per order. Second, my order took around 20 days to process. I actually thought the mint canceled my order. I tried calling them but the automated system always disconnected me. Third, if you want to do this, it’s probably best to have a local bank. When I went to the bank to deposit these coins, I had them count it and they asked me why I ordered such a large quantity of coins. I was completely honest with them and said that I did it for the credit card points. Fourth, I was relatively surprised at the size of the boxes. I was expecting 1 very large box. The combined shipping weight of the boxes was 46 pounds. Needless to say, not very light!

Some people might be shaking their heads in disgust or wondering who would be crazy enough to order 5,000 coins from the US Mint with their credit card. Well there are a couple of unique strategies that you can use to make some extra $ of this deal. First, you can order the coins with a cash back card. This will give you a certain percentage of $ back based on the purchase price. Second, after you make the deposit at your bank, you can move the deposited amount into a high yield savings account. This will give you 30 or so days of interest on the deposited amount. Probably anywhere from 10-20$. Essentially, these coins are an interest free cash advance.

I am actually using the points I get to collect Starwoods Preferred Guest (SPG) points. I am definitely going to execute this deal again. I will do it with the Presidential coins next and possibly order another round of the native american coins. My local bank is somewhat small and hadn’t even received any of these 2009 Native American coins from the Mint. I am a little bit leary about dropping another $5,000 off in coins right away so I will do the presidential coins first.