This post may contain affiliate links. Read the disclosure for more info.

In life, in order to get something you want, you often have to sacrifice something else. There’s no such thing as a free lunch, right? Wrong! Sometimes, if you’re careful, you can have your cake and eat it, too.

It’s time we talk about credit cards: a topic not previously discussed on this blog. If used strategically, credit cards can provide all kinds of benefits such as cash back, travel rewards, discounts and access to events or lounges, all at no cost to the user. I’ve stepped up my credit card game, allowing me to upgrade my annual ski vacation to a level that wouldn’t fit into my budget otherwise. I’ll talk a bit more about how I pulled that off in next week’s post.

Today, I’m going to talk about a few different credit card strategies. I’ve grouped them in order of difficulty, using categories of ski runs as a reference.

Never Ever

New skiers need to start somewhere. It’s usually some flat ground with the snow all smoothed down.

Some credit card users don’t have it all figured out yet either. They just don’t understand the right way to use their cards. We all need to learn at some point.

According to Money, “Only 35% of credit card users don’t carry a balance–they pay off their bill every month, like you’re supposed to.” That means that 65% of users are carrying a balance and probably paying interest based on outrageous rates. NEVER EVER do this!!! Paying interest at a high rate on a credit card is not a winning move. If you’ve found yourself in this position, please cut your spending and find a way to pay it off ASAP. Credit cards are designed to be paid in full. If you can’t do that each month, stop using them. I expect most of you (readers of personal finance blogs, after all) are part of the 35%, so I’m going to stop preaching now.

Watch Out For Overspending

There’s another never ever when it comes to credit card usage: spending more money because you are using a credit card and not cash. Do you ever wonder why merchants are willing to pay fees to credit card companies for their usage? It’s because we humans are flawed. We are prone to overspending when we can swipe some plastic instead of forking over cold hard cash. This is also why casinos use chips and not cash on the table. Swiping cards and pushing chips doesn’t feel as bad as forking over the green paper stuff.

The Luxe family did a cash only food experiment in February. One takeaway was that when “Paying with a credit card I wouldn’t think twice about, but seeing the waitress carry away my precious bills…dang.” This may be the best reason to use cash and not a card. If you can’t control your spending with a card, don’t use one. Personally, I think using a card keeps me more accountable because I closely track my spending. Having transactions documented in my credit card statements and tracking spreadsheet makes me think twice about every purchase. I’m not the average user though.

Beginner

Once you get a feel for the skis under your feet, you’re ready to go up the hill.

So you think you can keep your spending in check and pay the balance every month? Good. Because now you’re ready to start winning. There are no annual fee credit cards out there that pay you two percent cash back on every transaction. This is the bare minimum in rewards you should receive for using a card. A beginner does not want to bother with worrying about the extra stuff. They put all their charges on one good rewards card and pay the balance in full each month. That’s it. What’s nice, is the cash back really starts to add up. Once received, you can apply it to your savings or other high priority goals. Remember: this cash back from your card is as good as any other cash. Don’t waste it. Use that dollar for the highest purpose you can.

Intermediate

Intermediate skiers have the basics down. Now it’s about getting better at the margins and exploring new types of terrain.

Alright, so you’ve realized this rewards thing is pretty nice. Maybe your points or cash back helped you max out an IRA or paid for your big vacation. But you want to earn even more back for your spending. Did you see that ad for the card that gives 3% back on gas? What about the other one with 5% back on office supplies? Yup there are cards out there that pay extra rewards for different types of spending. Using a combination of three or four cards specifically to maximize the rewards could really add up! The tricky part with this is to remember which card to use for each purchase.

Advanced

Advanced skiers have it all under control. Nothing scares them. They are out on the hill looking for a challenge. Skiing fast down steep terrain is a typical run. They may even welcome some obstacles to keep things interesting.

Say you’ve mastered the art of using the right card for the right type of purchase, or just wanted to skip that step (like me). Yet, you want more rewards (also like me). Up until last year, I’d always been a Beginner credit card user. I always paid in full and collected a nice 2% reward. Last year I started playing a little game that’s commonly known as “travel hacking.” The idea behind this is to take advantage of the sign up bonuses offered by the card companies for obtaining new credit cards, even if they have an annual fee.

Before we get there, let’s review the ways credit card companies make money.

1 – Interest Paid

They get paid when a consumer pays interest. Thankfully some consumers (like you and me) don’t pay interest by paying our full bill each month. Yet, the card companies still make money from us in other ways.

2 – Merchant Charges

When we swipe, the merchant pays the credit card company a small percentage of each purchase. That’s why banks want you to use their card.

3 – Annual Fees

Some cards charge an annual fee. I’ve always avoided these in the past. Why pay for something you can get for free? I missed something though. Some cards provide enough value with incentives and other benefits that they’re worth paying the annual fee. As with any purchase, you need to be careful and avoid paying for something with no value to you.

What’s The Deal With Sign Up Bonuses?

In order to compete for all the above revenues, the credit card companies offer sign up bonuses to attract new customers.

Advanced credit card users find the cards with the best sign up bonuses and strategically apply for them. The sign up bonuses can yield way more than the 2%-5% rewards earned by beginners and intermediates.

The key to success here is to sign up for a new card. Then spend the required amount to reach a bonus. Finally, after the bonus is reached, go back to using your top rewards card until you start working on the next new card bonus. If a card stops having value to you, don’t continue to pay an annual fee on it. Downgrade it to a free version or close it (preferably transferring the available credit to a different card at that same company).

Some of the card companies have limits to the number of cards you can sign up for, so it’s important to be strategic about only signing up for the best offers.

Reaching The Minimum Spending

It’s important to reach the required spending limit with just your normal spending within the required amount of time. Don’t spend extra just to hit a bonus. If you are not on track to spend the required amounts, it may make sense to prepay something you were going to need anyway. For example: I paid my car insurance a few weeks early to hit a sign up bonus.

For an individual, an advanced user may open around four cards a year. Some have annual fees but if you get significant value from the card, the annual fee is often worth it. If you’re married, you each can open that many cards if you can reach the minimum spending per card with only your normal spending. When played right, this strategy should yield you plenty of rewards.

Expert

Expert skiers are the best on the hill. They can make the hardest terrain look easy. They attack the slope, no matter how hard with a fluidity and smoothness that makes it look easy. But watch out if you try to follow them. Those expert slopes are never easy.

Expert credit card users take travel hacking to the extreme. They push the limits and try and take advantage of every opportunity. They usually open many cards at once. Their normal spending may not meet the minimums, so they manufacture spending by doing things like buying gift cards and then selling them. This method of using credit cards is beyond my comfort zone, but I wanted to mention it for those of you trying to optimize everything.

What About Your Credit Score?

Well, as you may have guessed, the number one question about opening credit cards is about how they impact your credit score. I think this short article from Experian explains it well, stating:

“Generally speaking, new accounts come with new risk. If you are approved for the account, you may also notice a dip in scores when the account first appears in your credit report. However, if you keep your balances low and make all your payments on time, your scores should rebound.”

Personally, I’ve always had excellent credit. Opening these cards has not had any material impact to my score. This is because I use only a small percentage of the credit available to me and pay all balances in full.

What’s In My Wallet?

Here’s a peek at what I carry in my wallet. If you sign up for one of the Chase cards below, you can get a bonus and I will earn a few extra points for my next trip. It’s a win/win!

The Sapphire Cards For Flexible Travel Rewards

1- Chase Sapphire Preferred – 50,000 bonus Ultimate Reward Points with $95 annual fee (the fee is waived in year 1)

2- Chase Sapphire Reserve: – 50,000 bonus Ultimate Reward Points with $450 annual fee and a $300 annual travel credit

Note that Chase no longer allows one person to open both the Preferred and the Reserve so you need to pick just one. In my house, I carry the Preferred and Mrs. WPF carries the Reserve.

Want a Southwest Companion Pass?

3- Chase Southwest Rapid Rewards Plus – 50,000 bonus miles with $69 annual fee

4- Chase Southwest Rapid Rewards Premier – 50,000 bonus miles with $99 annual fee

By earning a bonus on both Chase Southwest cards, you could be well on your way to earning the coveted companion pass!

UPDATE – Since this was posted, the Southwest cards are now offering 40,000 bonus miles each. I’m not sure if/when the offer will be increased back to 50,000 again.

My Favorite Beginner Card

5- Fidelity Rewards Visa Signature Card – 2% Cash back with no annual fee, unfortunately there is no sign up bonus.

Winning Personal Finance is here to help you make profitable and efficient financial decisions, accomplish your goals and live your dreams. Subscribe and never miss a new post: First Name (or Nickname) Email address: Will never send you spam. I promise 😉 Unsubscribe at any time. Leave this field empty if you're human:

Weigh In!

How do you use credit cards? Are there any good tricks that I missed? If you have any questions on how to step up your game, let me know!

If you liked this post, check out How I Used Travel Rewards to Save $2,809 on My Dream Ski Vacation.