How credit cards could help you reach FI

How credit cards could help you reach FI

Financial independence is a central theme of this blog because it’s such a powerful concept. And guess what? Credit cards can help you get there.

Of course, I always have to qualify these statements by saying that credit cards are not without risk. I’d be remiss to recommend even more cards if you currently hold the average household credit card debt of $8,6836. Your focus in that case should obviously be paying down debt, perhaps employing your favorite debt repayment method.

Are you interested in financial independence? You may not realize it, but credit cards could actually help you get there. Read this post to find out how.

Instead, these ideas are intended for those who generally have their spending control and have a history of responsible card use. This has always been me, but for quite a while, I only used my cards to help my credit score and earn a few bucks in rewards. Maybe 1% here, 1.5% there.

That alone is fine, but credit cards can do so much more. In fact, if you have you have your spending under control, I’m here to tell you that Dave Ramsey isn’t always right.

Sorry, Dave. We’re all wrong sometimes, you know?

For example, in the post I linked above, Dave claims that “no one ever got rich off a rewards program.” Now, technically, he’s exactly right. After all, my rewards won’t put food on the table, nor will they help grow my investments.

But what they can do is enable me to do something I probably would have done anyway: travel. Instead of paying thousands to travel abroad, though, I can get that down to a matter of hundreds. At most.

The fact is that if you aren’t in Dave’s target audience, taking his advice could mean missing out on the excellent benefits of credit cards.

Travel Rewards

I realize that not everyone is quite as eager to travel as I am. Still others may not even have the option due to family, their job, or any number of other factors. However, if you happen to have an interest in traveling and aren’t completely tied down, credit cards can help you save a ton on your trip.

A great real-world example of this is Andy of Marriage Kids and Money. Andy recently took a vacation with his family, and he estimated the cost of the trip was about $6,000. Yikes, that’s a lot of cash. But thanks to his rewards, Andy was able to visit beautiful Cabo San Lucas with his family for a cool $300.

Sound too good to be true? Well, it’s not!

Andy used his credit card rewards to take a trip with his family to Cabo San Lucas.
Cabo San Lucas, Mexico

It’s pretty simple, actually. See, the banks issuing cards are “banking” – literally – on people who sign up for cards and rack up a ton of debt. The result? Despite the fantastically valuable signup bonuses, they end up paying more in interest than the bonuses’ worth.

Honestly, it sounds a bit unethical when you think about it that way, but that is the reality of the situation.

The good news? If you only use your card to pay for things you would have paid for anyway, you could earn hundreds or even $1,000+ in rewards for little to no cost.

Therein lies the rub: are you prone to misusing credit cards and racking up debt? If so, hey, don’t worry. Nobody’s perfect. I’m not patronizing you, either. I have definitely made mistakes with my money. But if that’s the case, you may want to take Dave Ramsey’s advice. And yes, I absolutely mean that.

Related: Credit Cards and the Credit Conundrum

Doing it the right way

On the other hand, if you are a little more like me, I definitely recommend looking into credit card rewards. I recently earned my Chase Sapphire Reserve sign-up of 50,000 points. I’ve also managed to tack on an additional 10,000 points, and the resulting 60,000 points should be enough to get me a round trip to Europe! I’m pretty excited about that, needless to say.

I'm hoping to visit the UK and Europe in the near future.
I’m hoping to visit the UK and Europe in the near future.

Now that I’ve earned that, I am waiting on my application for the Chase Ink Business Preferred. If approved, I’ll be on track to earn a whopping 80,000 points for spending $5,000 in 3 months. Crazy.

By the way, in case you aren’t familiar with points, they have a 100:1 points-to-dollars ratio. In other words, 50,000 points are worth $500. You will sometimes see miles instead of points for cards that are more focused on travel, but the ratio is the same.

Minimum Spend “Hacks”

You might be wondering how one could possibly spend $5,000 in just 3 months. Especially someone who isn’t exactly a millionaire like myself. Well, as is to be expected whilst travel hacking, there are actually several tricks for doing this.

Pay your rent and/or car payment with Plastiq

These won’t work for everyone, as many FI-ers don’t have a car payment, and may also have a mortgage instead of paying rent. And as it turns out, mortgage payments via Plastiq are mostly dead. Paying rent is still a viable option though, as are car payments.

How does this all work? You simply pay Plastiq using your credit card, and Plastiq will then send a check to wherever it needs to go. Now, Plastiq does charge a 2.5% fee, so you’ll pay $25 on a $1,000 rent payment.

But let’s take this one step further.

If you are fortunate enough to have the Chase Ink Business Preferred, you actually earn 3x points on your card for using Plastiq. Translation: you actually come out ahead by 0.5%. How d’ya like them apples?

As if that isn’t all good enough, the icing on this oh-so-good rewards cake is that the 80,000-point Chase Ink Business Preferred sign-up bonus could be worth a lot more than $800.

Prepay utility bills

Yet again, YMMV with this, so you can always contact your utility company and ask if it’s an option. Personally, I was able to pre-pay my Internet bill to 6 months out.

Buy gift cards

With this one, I definitely wouldn’t recommend buying $5,000 worth of Amazon gift cards or anything like that. But buying a few hundred bucks worth of gift cards can be a nice trick to help you meet your minimum. Of course, you would only want to buy gift cards you know you will inevitably use. Focus on stores you know you visit regularly, whether or not you are in the process of travel hacking.

Giving your credit score a boost

Switching gears now, I will speak a little bit about how credit cards can actually help your credit score. I did mention this one earlier. And it’s probably more in the realm of common knowledge, but I still feel it is worth mentioning.

At a high level, here are the factors that can be worked to your advantage by using credit cards (properly):

  • Payment history
  • Length of credit history
  • Credit utilization – how much of your credit limit you are currently using
  • Total number of accounts

These should all be fairly self-explanatory. At a very basic level, the idea is:

  1. Open a card
  2. Keep that card open for a long period of time*
  3. Pay the card on time and in full each and every month.

*May not apply if you are card churning.

Indeed, this is very simple, but that is the general idea. Such behavior – especially over a period of years – would help boost your credit profile. The result could be a higher likelihood of being approved for a mortgage, and more importantly, a lower interest rate.

The bottom line

There are many different uses for credit cards. In fact, I didn’t even cover hotel rewards; the same goes for airlines.

What is undeniably most important, though, is to make certain you are using your cards responsibly. Every benefit I detailed can easily be erased (and then some) by incurring sky-high credit card interest. Thus, I do recommend you tread lightly – particularly if credit cards have proven problematic for you.

If credit cards have not been much of an issue for you, but you have not been leveraging many of these ideas, I think they are worth considering.

Especially for me – travel is almost a must at this point. But spending the thousands of dollars in cash would push my FI pursuit months or even years back. That just isn’t a good deal, if you ask me. Which is why currently working on putting these strategies to good use.

Hopefully, by this time next year, I will be able to say I have already taken an international trip. Until then, I’ll be hard at work earning those points!

 

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This Post Has 8 Comments

  1. The Chase Business Ink is probably going to be my next card, though I just signed up for the new Marriott card because 12 free nights was just too darn good to pass up. I’m all about super cheap/free travel.

    1. I’m having some trouble getting approved, but I guess that’s because this blog isn’t exactly a full-fledged business at this point. Based on what I’m reading it is easier if you have a tax ID/EIN and all that. I haven’t done those things as of yet, but you probably won’t have much trouble if you have.

      Was that the Marriott with the 100k bonus?

      Edit: I saw your most recent blog post, but forgot it was you who wrote it. Let me know if you get approved for the Chase!

  2. What is your personal favorite card, because of the rewards program?

    1. Tough call, but currently it’s probably the Chase Sapphire Reserve or the Chase Ink Business Preferred (if I ever get approved). Clearly I’m partial to Chase, but that is in part because 5/24 means it tends to be better to start with Chase. Still, those two cards are definitely excellent ones.

  3. Good tips. I definitely use credit card sign-ups and spend almost exclusively on credit cards to earn points. The only thing you forgot to mention are the annual fees that come with the cards you discussed. Those can add up fast and be a big turnoff. However, there are some great no annual fee cards that can still earn rewards or cash back.

    1. Totally true. Usually the advice there comes down to preference: if the perks the card provides are worth it to you, you might choose to keep it despite the fee. From a strictly dollars-and-cents perspective though, it’s true that they could be an added expense.

  4. What kind of notifications are you getting when you aren’t getting approved for the Chase Ink Business preferred? We’re looking looking into that for later this year but I am a bit nervous about it as it would be our first business card. We haven’t done any blog monetization yet; DGal has a small tutoring side business that earns some revenue. The annual revenue is currently much smaller than the required $5,000 spend to earn the bonus points, so not sure how successful we will be in getting it.

    1. Hey DGuy,

      This flow chart is my point of reference for Chase Biz:

      https://i.redditmedia.com/fCArlEHCoXpSRdzJcqs_qvmeIyG-Kw-S1tTpMorDwXU.jpg?w=320&s=ff0a8af91f1dcc4c80faf6c09975cab0

      Currently I’m sitting at the “we’ll let you know in 7-10 business days” bubble. My understanding of this, in addition to asking in a Facebook group, is that I will need to prove that I have a legitimate business. That means I probably need an EIN for example. I am still thinking about doing that but haven’t yet, and I want to be sure I don’t shoot myself in the foot.

      But yeah, apparently the process isn’t nearly as simple as I originally thought.

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