Photo By: Blake Wisz

A 1993 episode of Rocko’s Modern Life, titled Who Gives a Buck, features the protagonist, Rocko, receiving a credit card. The following scenes include an elaborate shopping spree utilizing this new card at the encouragement of his friend. Afterwards, the bill finally arrives and Rocko is unable to pay off the total which leads to the debt collectors arriving and acquiring all of his purchases and more. This was probably my first introduction to the concept of a credit card.

In my parents’ household the credit card was more akin to the nuclear option (i.e., the last resort, to be avoided at all cost).

But why?

Easily the best explanation was the dangers inherent in using the credit card. The temptation of unfettered spending. The ability to defer the consequences of this spending to a later date where your financial situation would be different (and always hypothetically better). Needless to say, I lived by the principle of, If I couldn’t afford it. I simply didn’t buy it, and purchasing on credit somewhat violated this. So I went roughly twenty-six of my years without ever owning one. I would receive offers in the mail. Store clerks would press me to sign up for their store credit cards. But I had a checking account. I had a debit card. I knew exactly where I stood and I had no plans of falling into this trap.

But one night I was at a family dinner with my wife’s family. The dinner itself had concluded and everyone was paying for their meals and my brother-in-law handed his bill and card to the server.

Shortly thereafter his phone vibrated.

“I get a notification on my phone whenever someone uses the card.”, he said.

Neat.

“We also get cash back for purchases with this card.”, he continued. “Really? What’s the catch?”, I asked. “Nothing, we just pay off the balance in full every month.”, he answered.

My world had been shaken. The very foundations that under-girded my life had been destroyed. Well, not quite. I had a very surface-level awareness of such offers. Despite typically ignoring most credit card television commercials (along with most commercials in general), my skeptical nature simply assumed that there were fees or some catch associated with the offer. This conversation prompted me to at least look a bit deeper into the situation and determine if there was anything of value that I could apply to my own life.

The first website I went to was one that I was loosely familiar with, Nerdwallet.com.

There were so many options and terms and concepts that I wasn’t familiar with.

But after an evening of reading, I felt that I had covered the majority of the basics and I had determined my strategy going forward.

• I didn’t want to pay any interest. At all. This seemed easily achievable, I simply had to pay off the statement’s balance each month. After each monthly billing period, the credit card company would issue a statement that marked the balance owed and a summary of your transactions, rewards, and payments. By reviewing the statement’s transaction history, I could determine the best date to pay off the majority of the balance to keep both the statement’s balance low and also to keep my credit utilization low.
• I wanted to avoid any annual fees as well. I knew that quite a few cards offered high rewards but these rewards were balanced by an annual fee. This meant that I would need to track my spending habits to ensure that I was capturing enough rewards to validate the annual cost. These cards often encouraged spending in specific categories, which meant that you would need to estimate your spending in those categories on an annual basis to determine if it would be worth the annual fee.
• The reward systems differed from card-to-card. Some used a very straightforward percentage-based cashback system. Some cards used a points system that would require you to understand their own conversion system to determine the cash value. Some cards used airline miles as the rewards, these typically were the highest value rewards from a cash value standpoint; however since I wasn’t your typical jet-setting millennial, I didn’t see too many opportunities to redeem these rewards. For simplicity, I chose your standard cashback rewards card.
• Many cards encouraged spending in specific categories to take advantage of their rewards. Or better yet, they had “quarterly rotating categories” where spending in the category for that quarter resulted in a 5% cashback reward whereas spending outside of the category resulted in only 1% (which is still alright). Preferably my ideal card would also not have an annual limit on its rewards. This card was going to be an all-purpose card and simply replace my debit card permanently for spending, so I went with the simplest route: a card with the same flat percentage rewards across all spending.

I had finally settled on my first credit card and it came in Spring of 2016. Over the course of a month, my wife and I phased out our spending from our debit cards to our new credit card. I found myself continuously checking the balance, paying it off in increments, cashing in my rewards as soon as they appeared, and keeping track of our cash flow in/out to ensure that we weren’t overspending since the effects of our spending couldn’t be immediately seen in our checking account (something that budgeting software makes so much easier).

Therefore, our setup started with the following:

• 1x All Purpose Flat-Percentage Cashback Rewards Card

I was perfectly happy with this setup until the Spring of the following year. Though, I didn’t want to expand our collection too much; I did think it would be interesting to look into a possible addition. Ever since I had originally investigated the idea of acquiring a credit card, I had considered moving seriously toward one of the rotating category cards. There were two popular cards that followed this concept.

Then I thought, Why not both?

Every quarter, there would be at least one category that would earn 5% cashback. Most quarters, there would be two. What if the categories overlapped? Since both cards had a hard limit on the amount you could spend in their quarterly category before the 5% would drop back to 1%, overlapping categories would essentially double this limit.

But what would be the penalty for acquiring both cards?

Simply the additional complexity of carrying more cards and having to determine which card to use for which purchase (which would change every quarter). And having to remember to activate the categories to take advantage of the rewards. I was willing to take this trade-off.

Therefore, our setup now included the following:

• 1x All Purpose Flat-Percentage Cashback Rewards Card
• 2x Quarterly Rotating Category Cards

But it doesn’t end there. I was fairly satisfied to leave this setup as is, however during this period I was opening up a new checking account (something that I will cover in a future post). One of the offerings from this credit union was a credit card that had three static reward categories (3% Groceries, 2% Gas, 1% Everything else) with some added benefits (that I’ll discuss in the future post).

Therefore I decided to take advantage of the offering which updated my setup to the following:

• 1x All Purpose Flat-Percentage Cashback Rewards Card
• 2x Quarterly Rotating Category Rewards Cards
• 1x Static Categories Cashback Rewards Card

With this setup, I would earn at least 5% back on at least one category of spending, 3% on groceries, 2% on gas, and a flat percentage across the board on everything else. To make things much simpler on my wife, I would physically update labels on each card to inform her and myself on which card to use in which circumstance.

Instead of manually paying the balance in increments or on specific points throughout the month, I changed the payment due date for each card to the end of the month and proceeded to setup both automatic statement balance payments and also automatic rewards redemption. Therefore, everything would be hands-off and I would only need to carefully monitor the actual cash flow itself as I moved every spending (including automatic billing services, subscriptions) to charge the cards rather than actual ACH withdrawals (unless there was an associated card transaction fee that would offset any rewards benefit).

Is there room for expansion? Possibly. I’m reluctant to add any more complexity and at some point I do believe that you’re simply working too hard for a very small payoff (a small percentage of your spending). In the beginning, I simply saw an opportunity to earn money (albeit a small amount) from our everyday spending; I wasn’t looking to earn anything substantial.

As with any thing in this world, there’s an online community completely devoted to and possibly obsessed with that thing, and credit cards are no different. There are people devoted to churning introductory credit card bonuses and offers and managing their spending and card cancellations to get the best benefits and avoid any possible fees. This is a little too involved of a process for me to be interested in.

Many people absolutely swear on using travel credit cards to earn free trips and other rewards; if I was to expand my own collection, it would be to move in this direction. However, I’ve yet to have the impetus to heavily research and pursue this path (to my wife’s relief). Also, from a surface-level, it also seems like a very involved process as well. In the future, as new cards are introduced with higher rewards, I may replace certain cards in my holdings with these superior cards; however I probably won’t close the existing cards to keep my debt-to-credit ratio low.

But as it stands, the setup accomplishes what I had set out from the start. I essentially earn a discount on any purchase. It has replaced the debit card in my repertoire (which adds a safety benefit in the case of stolen cards since the thief can’t simply zap my checking account to zero and also credit cards’ fraud prevention measures are relatively top-notch). Automatic payments and rewards redemption ensure that I don’t fall into the trap of incurring any finance charges or allowing the balance to snowball from the outrageous interest rates since the balance is paid in full each billing cycle.

Want to learn more and possibly create your own setup? You can start where I did at: Nerdwallet