YNAB You Need A Budget

[beandogger]

So I've never had a credit card before. My whole life I was told that having a credit card helps build credit. Well, my credit score is in the 800s so I've never seen it as a benefit. However, lately I've seen some pros to using a credit card over using a debit card -- protection, rewards, and my wife doesn't find out how much I spent on her birthday gift.

So I have excellent credit, only debt is my house, live on last months income, etc., etc. Which credit card will offer me the the highest rewards and best protection?

Any comments would be appreciated.

Beandogger

[Patzer]

There is no one best card for everyone. Which card is best for you depends on your card usage patterns. Because the card issuers change terms and conditions from time to time, which card is best for you may change over time.

First, the basics. From your comments, I know that you have been using YNAB for a while and have a buffer. You will certainly pay the card in full when it is due, and earn interest on the funds in the meantime. I'm sure you understand that part, and any credit card gives you that.

There are a bazillion different credit card reward programs. They fall into three main types--cash, airline miles, and points. I like cash. Airline miles can be more valuable for some people. If you don't know whether you are one of these people, you aren't. Points come in a variety of flavors ranging from earning the right to get something worthless to near-cash substitutes. The near-cash substitutes are the best of the points, with the disclaimer that the issuer can devalue earned points at any time by changing the redemption prices. (That can happen with airline miles, too.)

For baseline comparison, I would advise you to look for a card that pays at least 1% cash back and has no annual fee. Once that requirement is met, you start looking at the other terms and conditions. Does it have a higher percentage back on some purchases? If so, do you buy that stuff? How much do you have to earn before you can redeem the cash? How long will that take you? Are there any other features of the card that would make this card look better than an otherwise comparable card from a competitor?

I've used a variety of rewards cards over the years. Right now I have a Citi Dividend World MasterCard and a Fidelity Investment Rewards Amex. The Fidelity Amex earns points (sigh) that convert to the equivalent of 2% cash back, swept into my brokerage account. There are some fiddling details around the edges that make the $50 chunks I earn slow to transfer to the brokerage account, but I can live with that for 2% back. Of course, the Fidelity Amex isn't very good unless you have a Fidelity brokerage account.

The Citi MasterCard has recently had a terms change to effectively earn 1% cash back on everything. (Previously, there were some categories that earned 2%.) I use it where Amex is not accepted, for all online purchasing, and for snail mail bill payment by credit card. The reason I use it for those last two is the Citi virtual card numbers. I generate a virtual card number that is usable only by one merchant and give it a credit limit equal to the amount I am spending. The expiration date is at the end of the month after I generate it, i.e. 29-61 days in the future. This gives me a bit more security in the event that a merchant's database is compromised or (more likely) that an online merchant decides I ordered something I didn't intend to order.

Other people will have their own favorite cards. For a while, the Chase Freedom card had great rewards. Then Chase changed the T&C to require a Chase checking account to get the good rewards; I ended up closing my Chase checking account because it was not competitive with my other checking options and putting the Chase Freedom card in a locked file drawer. Discover is the granddaddy of all cash back cards. For a while I used Discover because Sam's Club didn't take any other cards; when Sam's started taking MasterCard again, Discover went back into that locked file drawer. The Discover cash back is not competitive and the big numbers that Discover advertises require jumping through hoops I don't want to jump through.

The short answer is that there is no short answer. You need to look at the details to see what will be a good card for you, and be prepared for the details to change over time.

Patzer

[J.Mann]

So I've never had a credit card before. My whole life I was told that having a credit card helps build credit. Well, my credit score is in the 800s so I've never seen it as a benefit. However, lately I've seen some pros to using a credit card over using a debit card -- protection, rewards, and my wife doesn't find out how much I spent on her birthday gift.

So I have excellent credit, only debt is my house, live on last months income, etc., etc. Which credit card will offer me the the highest rewards and best protection?

Any comments would be appreciated.

Beandogger

Currently, I am in a similar position as you and just use a credit card for the rewards.

The best card currently that I have found is Capital One. They have a card that offers 1% on all purchases, as well as 2% on gas and food, if i recall properly.

The previous card I used was Chase Freedom, which offers 1% on all purchases, and a 5% bonus on alternating categories. However, I have found the 5% bonus on alternating categories to be in stuff I don't make purchases in, as well as so delayed that it makes more sense to get the 2% back on gas and food sooner. Since those are my main purchases anyways.

[lindy]

I have an amazon.com credit card, which is now part of Chase. I applied for the card at amazon.com and immediately got $30 to spend at amazon.com. I don't know if this is still available or even if you can still apply for the card right at the amazon.com site. But I just checked the Chase site and here are the rewards:

* Earn 3 points on eligible Amazon.com purchases
* Earn 2 points on eligible gas, dining, and drugstore purchases
* Earn 1 point on purchases everywhere else
Reward redemptions start at 2,500 points.

When I first got the card, the only reward was a coupon for $25 for 2500 points, redeemable only at amazon.com. This was fine with me because I use my credit card for almost everything and I made a lot of purchases at amazon.com, making my points add up quickly. More recently, I've been making fewer amazon.com purchases, so I'm happy that they've added a cash reward - a $50 check for 5000 points - as well as a number of other rewards (https://www.choosemyrewards.com/Media/C-AmazonConsumer.pdf).

You can also check out http://www.creditcards.com/, one of the sites that sorts cards by category - rewards, cash back, low interest, etc. - and provides the benefits and requirements for each card. The site also lets you compare cards.

[bfkimball]

By far the best card is the American Express Blue Cash (not just Blue, but Blue Cash).

I get 5% on Gas, Grocery, and Drug Store purchases, and 1.25% on EVERYTHING ELSE. These percentages kick in after the first $6,500 in spending. Before that you earn 1% on the three categories and .5% on everything else.

As a result of putting everything that my wife and I possibly can on the card, our annual cash back rewards have been $852 in 2008, $728 in 2009, and for 2010 we're at $520 and growing.

My interest rate is high (17%), but that shouldn't matter because if you're budgeting and following the YNAB way then you'll pay it off each month as we do. Prior to implementing a budget I had 2 months in 2 years when I couldn't pay the bill in full and each time the interest was around $30. That was a VERY small price to pay for this cash rebate.

I couldn't be more excited to recommend this card to everyone who will listen. Check it out.

[malisab]

By far the best card is the American Express Blue Cash (not just Blue, but Blue Cash).

I get 5% on Gas, Grocery, and Drug Store purchases, and 1.25% on EVERYTHING ELSE. These percentages kick in after the first $6,500 in spending. Before that you earn 1% on the three categories and .5% on everything else.

As a result of putting everything that my wife and I possibly can on the card, our annual cash back rewards have been $852 in 2008, $728 in 2009, and for 2010 we're at $520 and growing.

My interest rate is high (17%), but that shouldn't matter because if you're budgeting and following the YNAB way then you'll pay it off each month as we do. Prior to implementing a budget I had 2 months in 2 years when I couldn't pay the bill in full and each time the interest was around $30. That was a VERY small price to pay for this cash rebate.

I couldn't be more excited to recommend this card to everyone who will listen. Check it out.

I know I could go find out online, but since you still appear to be around, what's the annual fee (if there is one). I recall Amex used to be high.

[lindy]

There's no annual fee for the Amex Blue Cash card. But one site I looked at (http://creditcardforum.com/rewards/232-warning-american-express-blue-cash-here-s-catch.html) said that with the $6500 before the extra rewards kick in, it's only worth it if you spend an average of at least $1500/month ($18,000+ a year). And another site (http://www.nerdwallet.com/blog/2010/5-reasons-to-avoid-amex-blue-cash/) said the reward is only paid once a year. And the interest is high if you don't pay your bill in full each month. Otherwise, reviews (even by those with the complaints I mentioned) are very positive.

[Patzer]

By far the best card is the American Express Blue Cash (not just Blue, but Blue Cash).

I get 5% on Gas, Grocery, and Drug Store purchases, and 1.25% on EVERYTHING ELSE. These percentages kick in after the first $6,500 in spending. Before that you earn 1% on the three categories and .5% on everything else.

Amex Blue Cash is great for people who shop where Amex is accepted and can count on spending significantly more than $6,500 per year on an Amex card. For people who have significant purchases from merchants who don't take Amex, or who don't run $13K through the card in a year, Amex Blue Cash doesn't look so good.

Great card for some spending patterns. Lousy card for other spending patterns. One size does not fit all, and I don't want that card urging me to spend more money to get to the good cash back. Cash back is nice, but the real money is in controlling what I spend. Hence, YNAB.

Patzer

[bfkimball]

Patzer- totally agree. It depends on your spending pattern.

In my case it works because 2 people's spending is going on the card, and all of our bills go on the card. We really don't see many merchants who can't accept our card. Maybe we're luckier in that respect, living in the SF bay area. Don't know.

But even if we only spent half of what we do now, we'd still see three to four hundred dollars back each year. Not too shabby.

[beandogger]

Thanks for the great replies. I'll have to look into how much I spend on my debit card vs. how much my wife spends on hers. Is it possible to have two cards (like a duplicate) so whatever my wife spends and whatever I spend go towards the same rewards program? Or are they just setup per card? My wife buys all the groceries, etc. so she ends up spending a lot more than I do each month.

Thanks,

Beandogger

[lindy]

Check with the particular card issuer. Some, if not all, let you put more than one name on the account and will give you more than one card.

[Patzer]

Is it possible to have two cards (like a duplicate) so whatever my wife spends and whatever I spend go towards the same rewards program?

Every major card issuer would be happy to accommodate you. Either one of you is the account holder and the other is an authorized user, or you get a joint account. Joint accounts can give you issues in the event of divorce. The authorized user strategy can give you issues if the wrong spouse dies first. For stable marriages with no health problems on the horizon, either one will work fine.

Patzer

[bookman413]

For straight cash back, one of the absolute best, if not the best, is the Pentagon Federal Credit Union Platinum card (can't rememer if it's a MasterCard or a Visa) that gives 5% back on groceries, 2% back on gas, and 1% back on the rest.

If you are not a member of the US armed services, there's still a way to get into the credit union and then apply for the card by becoming a member of the Military Families Association (or something like that). Details are on the PFCU website.

[ginger]

For straight cash back, one of the absolute best, if not the best, is the Pentagon Federal Credit Union Platinum card (can't rememer if it's a MasterCard or a Visa) that gives 5% back on groceries, 2% back on gas, and 1% back on the rest.

If you are not a member of the US armed services, there's still a way to get into the credit union and then apply for the card by becoming a member of the Military Families Association (or something like that). Details are on the PFCU website.

Is it this Visa card? If so you got the gas and groceries percentages backwards, which is a shame. My grocery budget dwarfs my gas budget!

https://www.penfed.org/productsandrates/creditcards/rewardcards.asp

[malisab]

Is it this Visa card? If so you got the gas and groceries percentages backwards, which is a shame. My grocery budget dwarfs my gas budget!

That brings up a question for me. I've only used the type where you earn points, and it's a fixed amount. How do they decide what it's for? What about places like Target and Walmart? Do they split transactions at places like that? And there are grocery stores that have gas attached. But I assume those show up differently enough that they can categorize it properly.

Curious.