Best Credit Card Value

If you are one of the 39% of Americans who does not have $1000 in cash or a savings account for an emergency then the best credit card is a shredded credit card.  For those without financial savvy, a credit card is a one way ticket to legalized slavery.  A credit card is NOT for emergencies, that is what a savings account is for.

This article is to help those who pay their credit card balance in full every month choose the one with the best value for travel.  There are literally thousands of options for credit cards and the “best” credit card depends on your needs.  Here are the three factors to consider in getting the best value credit card:

  • Annual Fee.  Most people cant get past this one.  Why “waste’ $100/yr on a credit card when you can get one for free?  Because the high annual fee cards can be an incredible value for travel, thats why!  Of course we want to minimize yearly cost but the annual fee is only one small part.  You need to look at ALL costs and benefits, not just the annual fee.
  • APR (interest rate).  Many people focus on this but its completely unimportant because you should always pay your card in full every month.  No balance, no interest payment – no matter what the APR is.
  • Rewards.  This is the big one.  What do you get for each dollar spent and what is the value of it? Here are the various types of rewards:
    • Cash back on all purchases.  Typically 1% or 2%.
    • Cash back at selected stores.  Typically much higher than the “all purchases” cash back, can be 5% or higher because it forces you to do your shopping at specific stores that limits your ability to bargain shop.
    • Cash back at one store.  Many hotels, retail stores, and other businesses have their own credit card where you either get cash back to use at their business.  These reward levels can be high but you have no flexibility in how to use them.
    • Frequent flyer mile cards.  With these, you typically get 1 frequent flyer per dollar spent or more if you use the card with the airline or its affiliated hotels.

Best Credit Card for Travel

If you travel a lot for business or pleasure, most often, the best value credit card will be one that gives you frequent flyer miles instead of cash back, lets look at why this is the case.

A standard cash back card gives you a rebate of 2% of all purchases so lets compare the value of frequent flyer miles to this 2% rebate.  As I mention in my article on best airline value, my goal is to get the flat bed sleeper berth for long international flights as cheaply as possible and the way to do this is by purchasing a coach ticket and upgrading with frequent flyer miles.  I use all my frequent flyer miles for these first class upgrades because its a much better value than simply using them for free coach tickets. Lets calculate the value to me of these frequent flyer miles with a few example flights.  I want the first class seat for as cheaply as possible.

San Francisco to Frankfurt in peak season
A coach seat is $1700 and a 1st class sleeper seat is $2900.  I buy the $1700  seat and use 30,000 miles to get a $2900 value.  That 30,000 miles saves me $1200 so each mile is worth 4 cents or a 4% rebate which is twice as good as those 2% cash back cards.

San Francisco to Hong Kong
A coach seat will cost me $1000 and a 1st class sleeper seat is $3500.  I buy the $1000  seat and use 40,000 miles to get a $3500 value.  That 40,000 miles saves me $2500 so each mile is worth 6 cents or a 6% rebate which is three times as good as those 2% cash back cards.

New York to London

A coach seat will cost me $648 and a 1st class sleeper seat is $2967.  I buy the $648  seat and use 30,000 miles to get a $2967 value.  That 30,000 miles saves me $2319 so each mile is worth 7 cents or a 7% rebate which is pretty spectacular.

Do your spreadsheet!

Saving money is work and you have to be smart.  You can tell from the above discussion that how much you save will depend on a lot of factors including the price spread between coach and first class seats, the number of miles required for the upgrade, and lots of other factors.  You really have to plug everything into a spreadsheet to see which makes the most sense for you and the airline you use.  Maybe a cash back card IS best for you but it will depend on how much you fly and what you will be using your miles for.

You also have to be careful not to fall into the loyalty trap.  It pays to pay a small premium to go with your airline so that you earn miles and status but at some point, loyalty is silly.  That happened to me last year on my trip to Sri Lanka.  I really wanted to take United so I could earn miles but their coach ticket was nearly $5000 whereas another airline was offering $1000.  I dont need to do a spreadsheet to know that the $1000 ticket was the right decision.  Smart loyalty, not blind loyalty is called for.

Business Credit Cards

Not only do I have a United credit card (thru chase) for personal use but I also have one for my business and earn miles on that as well.  I am never short of miles for upgrades to first class.  As an aside, if you have a side business you might think it silly to pay another $100 annual premium for another mileage card but I find it totally worth it because of the simplified accounting.  With a separate credit card which is only used for business expenditures, tax preparation becomes as easy as downloading a spending report from your credit card company.