Premium Credit Cards: Are They Worth the Annual Fee?

 

Welcome back to Choose Credit blog. After a brutal winter, spring is here and so are we!

Thanks again for such a great response to our first two posts: Credit or Debit? and Travel Rewards Cards: Where Do I Start?. Your comments, LIKES, and SHARES on Facebook, Twitter, and Instagram are welcome and appreciated!

Now that we know that: (1) credit ALMOST always beats debit; and (2) travel rewards are your best bet for points redemption; it’s time to take points to the next level!

ANNUAL FEES?

One of the most frequent questions I hear about credit cards relates to those cards which others perceive as having high annual fees: “Why would you pay that much for a card?! Aren’t you just throwing away money?”

My friends, there are two things to note in order to answer those questions:

1) A fundamental rule of credit card rewards: only #ChooseCredit cards that will allow you to earn additional value from your spending and provide sufficient benefits that you will actually take advantage of.

2) Premium cards are designed with benefits that will exceed the cost of the annual fee. If the benefits of a premium card don’t provide enough value for your particular situation, don’t get the card!

Rather than saying much more, #LetsGetToThePoints and show you what exceptional benefits some of the most popular premium cards can offer:

 

The Platinum Card from American Express

Annual Fee: $550 (NOTE: by combining the $200 annual travel rebate, $200 annual Uber credits, and $100 credit at Saks Fifth Avenue, the effective annual fee is only $50)

Bonus Offer: Earn 60,000 Membership Rewards points after spending $5,000 in the first three months.

Potential Bonus Value: $1,200 (One Membership Rewards point = approx. 2 cents when redeemed for travel)

Key Benefits:

5x points on flights booked directly with an airline/AMEX Travel AND hotels purchased through AMEX Travel.

$200 annual airline rebate for incidental fees

Up to $200 in annual Uber credits; $100 at Saks Fifth Avenue

Rebate for Global Entry/TSA PreCheck application fee

Centurion Lounge and Priority Pass lounge access; Delta Sky Club access when flying Delta

Complimentary Gold status at Hilton and Gold Elite status at Marriott Bonvoy

 

The Hilton Honors Aspire Card from American Express

Annual Fee: $450 (NOTE: this cost is easily offset by the $250 annual Hilton Resort credit and $250 annual airline fee credit)

Bonus Offer: Earn 150,000 Hilton Honors points after spending $4,000 in the first three months.

Potential Bonus Value: $900 (One Hilton Honors point = approx. 0.6 cents when redeemed for Hilton stays)

Key Benefits:

EXCEPTIONAL Combined Earning of 34+ points per dollar spent at Hilton properties (approx. 20.4% return):

-14x points per dollar spent at Hilton properties (approx. 8.4% return)

–Complimentary Hilton Honors DIAMOND status – a STEAL of a deal! This is Hilton’s highest elite status, which earns you an extra 20 points per dollar at most Hilton properties (12% return), free breakfast, automatic room upgrades (depending on hotel availability), guaranteed room availability, 2 bottles of water per stay, and much more!

7x points per dollar spent on (1) flights booked directly with airlines or at amextravel.com; (2) select car rentals booked directly from the car rental company; and (3) U.S. restaurants (approx. 4.2% return)

$250 annual Hilton Resort Statement Credit (incidentals at Hilton resorts)

$250 annual Airline Fee Credit (intended for airline incidental fees, but this credit can be redeemed for many airline gift cards!!)

Priority Pass Select Membership – Unlimited Priority Pass lounge access for you and two guests.

 

Chase Sapphire Reserve

Annual Fee: $450 (NOTE: $300 annual travel rebate reduces effective annual fee to $150)

Bonus Offer: Earn 50,000 Ultimate Rewards (UR) points after spending $4,000 in the first three months.

Potential Bonus Value: $1,000 (One UR point = approx. 2 cents when redeemed for travel)

Key Benefits:

$300 annual travel rebate (purchases at airlines, hotels, Airbnb, cruises, tolls, trains… the list of eligible expenses is basically endless)

3x UR points earned on all travel (excluding purchases counting towards the $300 travel rebate) and dining

Priority Pass Select – lounge access for you; authorized user cardholders also receive their own membership

Rebate for Global Entry/TSA PreCheck application fee

The American Express Gold Card

Annual Fee: $250 (NOTE: $120 annual dining credit and $100 annual airline fee credit reduces effective annual fee to $30)

Bonus Offer: Earn 40,000 Membership Rewards points after spending $2,000 in the first three months.

Potential Bonus Value: $800 (One Membership Rewards point = approx. 2 cents when redeemed for travel)

Key Benefits:

4x points (approx. 8% return) at U.S. restaurants and U.S. supermarkets (supermarket benefit capped at $25,000 per calendar year)

3x points on air travel booked directly through an airline or via amextravel.com

$120 annual dining credit – $10 per month at Grubhub, Seamless, The Cheesecake Factory, Shake Shack, and Ruth’s Chris Steak House

$100 annual airline rebate for incidental fees (intended for airline incidental fees, but this credit can be redeemed for many airline gift cards!!)

 

Those cards are only a few of the most popular premium credit card options. What sets them apart from your typical cash back card or basic travel rewards card? PREMIUM BENEFITS.

• Fee Credits – with built-in annual credits for airlines, Uber, resort stays, and travel, most of these cards carry plenty of benefit that will reduce the effective annual fee;
• Points Earning Potential – with a variety of bonus point earning categories that earn excellent return values (like 20.4% with the Hilton Aspire on Hilton stays!!), these cards offer great earning potential on your spending;
• Sign-Up BONUSES! – premium cards offer the best of the best sign-up bonuses around; and
• Perks – with reimbursement for Global Entry/TSA PreCheck application fees, complimentary Priority Pass/Centurion Lounge Access, and complimentary hotel elite status, these cards offer perks that will enhance your travel experience, no matter where life takes you.

 

One last thing before you submit that premium credit card application: REMEMBER, most of these cards require an EXCELLENT or GOOD credit score and sufficient income. If you don’t have sufficient credit for a card, don’t be discouraged and be patient! Build your history; make on-time payments for cards, bills, mortgages, and your car; and do everything in your power to payoff your cards within the month (NEVER carry a balance if at all possible). For ideas on how to better manage your debt and financial situation, check back with us at Choose Credit blog for a future post on the topic.

 

 

With 3 posts down and many to come, we’re glad you’re on the Choose Credit journey with us! We hope this post has shed some light on the exceptional benefits available to you via premium credit cards.

What do you think about the cards detailed in this post? Could any of these cards bring greater value to your wallet? Feel free to share your thoughts in the comments below and tell us what cards you’re thinking of applying for or which cards are bringing you excellent value.

Also, don’t forget to LIKE and SHARE our website home and social media (Facebook, Twitter, and Instagram) pages!

Until next time, safe travels, my friends.

Travel Rewards Cards: Where Do I Start?

Welcome back to the Choose Credit blog! Thanks for your interest…

 

 

We’re grateful for your tremendous response to our initial blog post: Credit or Debit? Your comments; LIKES and SHARES on Facebook, Twitter, and Instagram; and additional feedback have been greatly appreciated.

As we discussed in our original blog post, the prospect of financial rewards is one of the key reasons that, more often than not, credit beats debit. These rewards vary among the countless number of credit cards out in the marketplace, but virtually every credit card measures financial rewards based on a points system.

For so many of us, these different point systems and bonus categories can be confusing. That’s why here at Choose Credit blog, we’re focusing much of our time and resources to help you make sense of these financial rewards programs and show how YOU can Earn Points and Stretch Your Dollar on your everyday spending.

Today, we’re dipping our toes in the world of travel rewards, a highly valuable and yet often misunderstood area of credit card rewards.

CASH BACK

I bet that most of you have seen plenty of commercials that mention something about cards earning cash back. Here’s an example that I’ve seen frequently: https://www.youtube.com/watch?v=Mxi4bO6vjDs

As that commercial emphasizes, the Capital One Savor offers a solid 4% cash back on dining and entertainment, and members can also earn 2% cash back at most grocery stores and 1% on everything else.

So what does this mean? It means that for every U.S. dollar a Capital One Savor cardholder spends at restaurants, sporting events, concerts, theme parks, etc., the cardholder will earn 4 cents back as a reward (2 cents per dollar at most grocery stores, and 1 cent per dollar for other types of purchases). “Free money” sounds good, right?

So is cash back the king of credit card rewards or does travel rewards have a stronger claim to the throne? Short answer: It depends (a lawyer’s favorite answer)…

Long(er) answer: Bear with me, friends.

As I said before, every card has its own points system and bonus categories. The Capital One Savor offers cash back as its primary reward, as does the Chase Freedom, Chase Freedom Unlimited, and Blue Cash Preferred from American Express. Understanding the redemption value is pretty straightforward:

Capital One Savor – 4% cash back on dining and entertainment, 2% cash back at most grocery stores, 1% cash back on everything else;

Chase Freedom – 5% cash back up to $1,500 in combined purchases at merchants in the card’s quarterly bonus category, 1% cash back on everything else;

Chase Freedom Unlimited – 1.5% cash back on all spending;

Blue Cash Preferred from American Express – 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases, 3% cash back at U.S. gas stations; 1% cash back on everything else.

What credit card issuers aren’t actively promoting in their commercials is that your rewards are actually earned in points. Those points are most often redeemed as cash back, where 1 point often equals 1 cent or even less. But in most cases, you aren’t limited to redeeming your points as cash back only; you can also redeem them for gift cards (which generally devalues your points) or TRAVEL. Now let’s talk travel.

TRAVEL

Now we’re back to the main focus of this post—Travel Rewards: Where Do I Start?

I find it best to discuss travel rewards within the context of what I would consider the best and most valuable beginner travel rewards card on the market: the Chase Sapphire Preferred.

The Sapphire Preferred has one of the most incredible sign-up bonuses in the business: 60,000 Ultimate Rewards points. To earn those points, you must spend $4,000 in the first three months from the opening of your account. If you redeemed those points as cash back, you’d have $600! That’s nearly a 15% return ($600 bonus/($4,000 spending + $95 annual fee)) = 0.146)!

But what if I told you that you could essentially DOUBLE your value by redeeming those 60,000 points for travel? Which means yes, those 60,000 points could be worth $1,200 (a 29% return) if you play your cards right!

How is this possible and why would issuers like Chase give us this option?

This is possible thanks to the tremendous bargaining power that Chase—the largest bank in the U.S. and the sixth largest in the world based on their $2.5 TRILLION of assets—has with travel companies. The deal is simple: Chase offers its credit card customers an opportunity to improve their points redemption value by including ABC Airplane Company on their redemption list. Chase gets a generous discount from ABC Airplane Company in exchange for referring credit card customers as new customers of ABC Airplane Company. Chase saves money; ABC Airplane Company gets more business.

Another reason is Chase wants to offer benefits that bring value to its customers. I haven’t even gotten into all the details, but it should already be clear that travel rewards are certainly valuable to the majority of Americans. If a credit card’s benefits don’t bring some tangible value to the customer, then that card probably won’t be a successful venture for Chase. But by offering travel rewards as an option, Chase can make profits off its credit cards.

The sign-up bonus for Chase Sapphire Preferred is tough to beat. Based on the sign-up bonus alone, I would recommend you apply for this card.

If you’re new to the Choose Credit game and are wondering how in the world you could spend $4,000 in the first three months, I have three words for you: CHRISTMAS. IS. COMING. Regardless of which holidays you and yours celebrate, I would venture to guess that you’ll be spending more cash than usual these next few months. My other bit of advice is: use your new credit card for as many of your purchases as possible!! Bills, groceries, rent/mortgage payments, dining out, the whole nine yards… can really add up. Get more value out of your dollar and Choose Credit!

What else does the Chase Sapphire Preferred offer?

While the sign-up bonus for the Chase Sapphire Preferred and other travel rewards cards can certainly be appetizing, you can only earn the bonus once. So what else could this card and others offer for the rest of your card membership?

Travel and Dining Bonuses

The Chase Sapphire Preferred offers 2x Ultimate Rewards points per dollar spent for dining and travel. These categories are extremely broad; here are a few examples:

• Restaurants
• Airplane tickets
• Coffee shops
• Rental car
• Uber/Lyft
• Tolls
• Street parking

Circling back to how valuable those points can be if you redeemed them for travel (2x points per dollar x travel points valuation of 2 cents per point = .04), we’re talking a 4% return on your everyday dollar!

Travel Benefits

• Car rental insurance – This benefit covers the entire loss, damage, or theft of your car rental without reporting it to your insurance company. A huge win!

 

• No foreign transaction fees!

 

• Trip delay insurance up to $500 per ticket.

 

• Trip cancellation/trip interruption insurance up to $10,000 per trip for pre-paid, nonrefundable travel expenses if your trip is interrupted by sickness, severe weather or other covered situations.

 

• Baggage delay insurance of $100 per day for up to 5 days.

 

So What Is/Are the Catch(es)?

• Annual Fee – The Chase Sapphire Preferred and similar travel rewards cards require an annual fee of $95 (keep in mind the fantastic value you receive from the sign-up bonus, earning categories, and other benefits listed above).

 

• You MUST pay off your statement balance IN FULL every month. The interest you will pay could outweigh the exceptional benefits of this card.

 

• You’ll likely need a Good credit score (high 600s – 700s) to get approved, but fear not! I bet your score is better than you think. And if you’re approval odds aren’t good we will help you raise that score (be on the lookout for a coming blog post)!

 

• Also be aware of Chase’s 5/24 rule – Chase will likely deny your application if you’ve opened five or more accounts (with any issuer) in the past 24 months.

 

Bottom Line

The Chase Sapphire Preferred is about as good as it can get for your first travel rewards card. If you don’t already have this card in your wallet (whether you are a credit card rewards novice or a long-time expert rewards seeker), I would STRONGLY RECOMMEND you give this card a try!

You will not only enjoy one of the best sign-up bonuses in the credit card world, but also become a cardholder of one of the most valuable rewards cards out there for a minimal cost of $95 each year!

Your future is bright in the world of credit card rewards! Keep up with Choose Credit to learn more. Please send us your comments and continue to LIKE and SHARE our website home and social media (Facebook, Twitter, and Instagram) pages!

Until next time, my friends! Indeed, the “Future Looks Good…”

 

 

 

Credit or Debit?

Hello, World!

I’m Noah Dett, and I’m honored to welcome you to the Choose Credit blog. “Come Fly With Me…”

I’ve been inspired to begin this conversation with you after reading countless reports of increasing fears of credit within my generation (spoiler alert: I’m a twenty-something Millennial). Here are a few recent headlines:

“Visa Jumps on Debit Spending by Credit-Averse Millennials” (Bloomberg – Apr. 25, 2018).

“Why Millennials Are Ditching Credit Cards”  (Fortune – Feb 27, 2018).

“Millennials Spend More on Debit Purchases Than Credit” (U.S. News & World Report–Apr 26, 2018).

I won’t get into too much detail about the causes of these fears of credit, but such fears could be a result of:

• the aftermath of the Great Recession and much of Generation X’s spending habits;
• a lack of credit, debt, and/or financial education;
• enough debt already (STUDENT LOAN DEBT!!! Sorry, I have a “friend” who may be dealing with this at the moment. I digress…).

All of this brings us to the original question: credit or debit?

Debit seems easy and convenient enough, right? Your debit card is the free version of previous generations’ checks, and it’s easier to use. It’s directly linked to your checking account. It enables you to instantly convert checking account funds into cash at the ATM. It’s less likely to be subject to card processing fees. Plus, you know that just like checks, you should treat your debit card like cash from your checking account.

So what about credit? Credit’s associated with debt, right? Shouldn’t debt be avoided at all costs?

Short answer: In most cases, credit beats debit.

DISCLAIMER: I am NOT saying credit is always better than debit; this depends on your financial situation and the costs/benefits associated with specific credit and debit accounts.

Long[er] answer: Credit beats debit in most cases due to the prospects of:

(1) financial rewards—Earn Points and Stretch Your Dollar—for purchases you’re already making.

(2) flexibility – making the exact same amount of payment(s) on your credit card that you’re already making with your debit card, except your payment(s) isn’t due for weeks later (minor lesson from Finance 101: due to inflation and other factors, paying the exact same amount later maximizes value for you; it costs you less to give me a dollar two weeks from now than if you had to give it to me today).

(3) security – two kinds: financial emergency security (where an unexpected event occurs that causes an imminent need for money that cannot be fully paid from a checking account) and security from fraud (hackers and criminals aiming to steal your money and/or personal information). While some debit cards offer protection in these areas, credit cards are still your best bet. Plus, just think about it: would you rather have someone hack your credit card information (which is easily changeable and designed for fraud protection) or a direct link to your bank account?

(4) perks – I’ll save the details of this benefit for later posts, but how does elite hotel status, GlobalEntry/TSA Pre-Check for free, Uber/Lyft credits, airline travel credits, resort credits, etc. sound?

(5) Other reasons to be discussed in later posts… Stay tuned.

My goals for this blog are simple:

• Improve Your Score.
• Earn Points.
• Stretch Your Dollar.

These goals and various tactics for how to accomplish them will be the subject of upcoming Choose Credit posts, but for now, let’s keep it simple and have a word about credit. Unless you’ve been living under a rock, my guess is you know a thing or two about credit and credit scores. But let’s review…

Credit

Experian, one of the U.S.’s “Big Three” credit bureaus, defines “credit” as “borrowed money that you can use to purchase goods and services when you need them.” Credit can be:

1) Revolving credit – think traditional credit card; you are given a “line of credit,” or a preset amount of money from a bank or financial institution that you are allowed to borrow up to the maximum credit limit. You carry a balance (the revolving debt) each month and make payments to reduce/eliminate that balance (note: ALWAYS aim to pay off your balance IN FULL each month to avoid interest charges; there are situations where this may not be possible, but as I’ll talk about later, pay off in full is a MUST to meet the goals of this blog.).

2) Charge cards – similar to credit cards, but this type of card requires that you pay the total balance in full each month.

3) Service credit – think of your agreements with service providers (electric service, phone service, internet service, etc.). These agreements generally require monthly payment for the applicable service.

4) Installment credit – think car loans and mortgages. The lender/creditor loans you a certain amount of money and you agree to repay that money and associated interest in regular installments of a fixed amount over a designated period of time.

Having good credit is critically important if you want to make a major purchase, open a new account, start a business, get hired for a new job, rent a new place—the list goes on…

So how do businesses and people determine whether you are worthy enough for them to grant you a loan, approve you for a credit card, or start a new relationship with you (i.e. your creditworthiness)?… They’ll consider a variety of factors—including your income— but the universal measure of creditworthiness is your credit score.

Credit Score

Your credit score is a three-digit number that indicates how financially trustworthy you are. Think of it like grades in school (A, B, C, D, F); except in this case, the higher the number the better (e.g., a score of 800 is better than 750).

As I said before, there are three major credit bureaus (Experian, Equifax, and TransUnion; the “Big Three”). Each of the Big Three have their own credit score methodologies and ranges. Some of the Big Three even have different credit scores within the same bureau.

You’ve likely also heard of the term “FICO score.” FICO refers to the Fair Isaac Corporation, which created credit risk scoring in 1960. A FICO score is another type of credit score that is often utilized by U.S. lenders.

Take a look at the different credit score models and ranges in the graphic below, courtesy of our friends at Credit Sesame.

So what do YOU think?

• Could it really be that credit is better than debit?
• Are you interested to learn more?
• Am I, Noah Dett, crazy for starting this conversation?

I’m of the opinion that all of us are crazy in our own way.

My hope is that Choose Credit blog can be a collaborative forum for learning and discussion of the tremendous offerings available in the world of credit. If you haven’t learned anything new from this post, stick around for the next one and the one after that and the one after… Also, please post comments, questions, and suggestions that you have, and share this with your family and friends. The more the merrier!

I look forward to embarking on this Choose Credit journey with all of you!

“People never grow up, they just learn how to act in public.”—Bryan White