The optimization of credit cards was the subject of a 2014 article in our newsletter. This piece updates the recommendations made at that time.

In the film Up in the Air (2009) George Clooney first captivates Vera Farmiga by demonstrating his expertise in optimizing frequent flyer mileage programs. But apparently you don’t have to look like George Clooney to impress with this kind of thing, as websites for the Points Guy, the Miles Guy, and a long list of colorful mileage eccentrics pull millions of visitors each month. The sites are fun reading initially, but it becomes quickly apparent that you have to be constantly up to speed to play the angles just right. Indeed, even in an otherwise and often playful film, Clooney’s mileage maximizing obsession is shown to color a sad, lonely life more attuned to battle-planned itinerary than the messy claims of family and intimacy. Wouldn’t it be wiser to game your credit cards for dollars rather than collecting oft-depreciating mileage program points? Cash-back credit cards are likely the better way to go for those with a penchant for frugality and simplicity and only so much free time.

Cash, Not Miles

Let’s consider a household (very much like mine!) that puts $40,000 of spending a year on credit cards. $10,000 of that total is for groceries, and the first choice here is the Blue from American Express® card. It gives 6% cash back on up to $6,000 of grocery purchases a year. My family spends about that much each year at Trader Joe’s. We have a gluten-free eater in the household, and so we spend another $4,000 each year at our local Whole Foods. Whole Foods is now owned by Amazon, which offers an Amazon Prime Rewards Visa Signature card. Everything you buy at Whole Foods with your Amazon Prime Visa gives you 5% cash back. (If you buy items on sale at Whole Foods — insert your preferred joke here — you get an additional 10% off when you show that you have downloaded the Whole Foods app on your phone. Having the Whole Foods app on your smartphone probably provides Jeff Bezos that single minuscule piece of data about you he didn’t already own.)

Because I never use my Prime credit card for anything other than Whole Foods and Amazon shopping (more on this below) I shredded the card once I loaded the information to my home computer’s bookmarked Amazon page and my phone’s electronic wallet. I don’t like to carry a lot of plastic in my wallet, and so not having to carry a card I still get to use is appealing.

In terms of other spending, the four drivers in my family buy about $3,000 of gas per year. For this I used to use the American Express card, which provides 3% cash back, but now I use the Costco Anywhere Visa® Card by Citi associated with my Costco account. It gives 4% cash back for gas purchases. (Most people should pay up for the executive membership at Costco, but that’s another story. You can go broke quickly at Costco while being amazed at how much money you are saving. It’s kind of like how we used to feel eating huge plates of pasta while assuring ourselves that the entire meal was fat-free.)

We spend at least $5,000 each year in airplane tickets, and here, too, the Citi Visa® card associated with Costco offers a nice benefit: 3% cash back for travel expenses.

We make no apologies for spending an absurd amount of money on, at least $10,000 a year, and we now pay for all of it with the Amazon Prime Visa, which offers, again, 5% cash back.

Department stores are depressing and we seldom visit them, but American Express Blue gives 3% cash back for such purchases. For the purposes of our math, we’ll say these buys total $2,000 per year. (If you aren’t going to take out a mortgage or a car loan in the near future, and thus if your credit score doesn’t matter that much, you are usually better off putting department store purchases on a new credit card specific to that store. You get at least 10% off your purchase, often more, and then when the card comes in the mail you can just cut it up, pay the bill in full with a check, and tell the department store to close the account. When you are back in the same department store two years later, you just do it all over again. Lather, rinse, repeat.)

All of the spending not includable in the categories above I charge with a Fidelity® Rewards Visa Signature® card. You have to have an account at Fidelity to get this card. It provides 2% cash back on everything. I use this card quite a bit, which we’ll call $10,000 of spending each year.

Summarizing the above: that’s four credit cards total, only three of which I carry in my wallet. None has any associated annual fee, all are cash back, and all of the cash-back features are automated so it’s a “do nothing” process. Moreover, all of the cards can be set up so that they are automatically paid on time each month out of a checking account. And, if you want to keep track of your spending, all of the transactions can be imported into Quicken,, Banktivity, or whatever personal finance program you prefer. From a workload perspective, then, you can set up all of the above, easy peasy lemon squeezy, and then it runs on autopilot, dropping cash back onto your balance sheet every time you spend. How much cash? The spending example above totals $40,000 and with associated cash back of $1,590 that’s almost exactly 4%. Can you get more than 4% in value equivalent points by cultivating miles instead of dollars? Maybe if you really worked it. But you could have washboard abs, too, if it didn’t require so much effort.

Filed under: Financial Planning

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