Why Just One Credit Card Signup Bonus Per Year Can Save You Hundreds

I never get tired of this picture. This trip never would have happened without credit card signup bonuses. Just click on the picture if you want to know more.

I got into the points/miles hobby in 2013, and it changed my life.  I’ve learned more than I ever thought I would about collecting and using points and miles, and among the things I have learned, the most critical was this: signup bonuses are the fast track to big rewards.  2% Cash back?  Chump change.  Do you want to travel more (a LOT more) and pay less (a LOT less) for it?  Then please keep reading.

One of my favorite cards for cash back…but why not give it some help with an occasional signup bonus?

Let’s say you have a 2% cash back card, i.e. a card that gives 2% back on all purchases.  Incidentally, there are not many such cards (the Citi Double Cash is my favorite of these), and 2% is the best you can get for an “all purchases” cash back card.  Now, to make the arithmetic simple, let’s suppose you spend $50,000 per year on that card.  That’s $1,000 cash back per year.  Not bad, but let’s be honest.  You are not doing a lot of traveling on $1000.  Now, I can hear some folks out there saying, “But I don’t travel!”  If that’s true (i.e. that you never pay for a car rental, hotel room, or plane ticket), then cash back is definitely your friend.  I still want to see you maximize your return, however, so please check out this post on cash back cards.

For those of us who do travel, however, points and miles obviously make that easier.  So, let’s suppose that you jump into the signup bonus world by applying for the Chase Sapphire Preferred card.  The card comes with a 50,000 point signup bonus if you spend $4000 in 3 months.  At the bare minimum, the 50,000 points are worth $500 in cash back.  But, they are worth $625 in travel if you book through Chase.  We will keep going with this example, but I’d be remiss not to mention the greatest card offer I have ever seen, also from Chase.  Don’t let the annual fee scare you away. It’s a steal.

You car earn a quick $625 in easy to use travel rewards by signing up for this card

Let’s run some numbers.  Had you not signed up for this new card, we already know that you will earn $1000 cash back on your $50,000 in spending for the year.  That’s 2% cash back.  On the other hand, if you only sign up for the Sapphire Preferred during the year (no other signups), and you redeem your points for travel, you will still earn 2% of $46,000 (remember that $4000 went on your new Sapphire) from your 2% cash back card.  That’s $920.  But, you earned $625 in travel from the Sapphire.  Combining the rewards, we now have $$1545 in rewards from the same $50,000 in spending.  Your rate of return now?  3.09%.  Now, you may look at that and say “Wow, a whopping 1.09% difference.”  True, but you can also say that your return increased by over 50%.  And by the way, the rate of return on the Sapphire while earning the bonus is $625 / $4000, or 15.6% back.  I’m not even counting the additional points you will earn while spending the $4000 to earn the bonus.

Now, perhaps you are thinking “But Jennifer Garner tells me that these points are hard to use.”  She is right…if we are talking about airline miles from a specific airline.  What is so nice about Chase points is that you can pay for any available seat, hotel room, etc. using these points.  You can even pay using a combination of points and cash to stretch the points further.

So, if one new application gave you an additional $625, what’s to stop you from applying for more cards with big signup bonuses?  Are you worried about your credit score?  You shouldn’t be.

The only caveats I have if you are new to the credit card point/mile hobby are these:

  • Check your credit score. The best signup bonuses are given to those with excellent credit.
  • If you do not pay off your balance in full each month, do not under any circumstances apply for travel rewards cards. The finance charges will obliterate whatever rewards you are earning.  Focus instead on finding cards which offer 0% financing for 12 months.  Once you are able to pay off your credit card bill each month, then you are ready to get these big signup bonuses.
  • Be aware of Chase’s 5/24 rule. This rule is designed to discourage churners, i.e. people who sign up for cards, get the bonuses, and then stop using them.  The rule is: if you have been approved for 5 or more cards (not including store credit cards or non-Chase business credit cards) in the last 24 months, then you will most likely be denied for new Chase cards.  Naturally Chase have the best cards!  So, study up on the various cards out there and choose wisely before applying.
  • Apply for cards that make sense given your goals. If you live in a United hub, then earning a big stash of Delta miles is probably not going to change your life because they will be hard to use (unless you accept that a connection will most likely be involved).  I personally find that flex points, such as Chase Ultimate Rewards, AMEX Membership Rewards, and Citi Thankyou points are the best to own because of how easy they are to use when compared to airline miles.

So, what do you think?  Are you ready to ramp up your points/miles war chest with the occasional credit card application?

Hope you found this helpful.  If you enjoyed this article, please share it or email it so others can learn from it as well.  Let’s help as many people as we can!

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