Leveraging Your Credit Card Strategy

Like many things in life, credit cards are tools that can cause lots of damage when misused. But when used properly, you can actually leverage credit cards and derive great value from them. So how do you leverage credit cards? The key is understanding the credit card pros and cons, what dangers they have, what benefits they offer and which ones are the best match for your personal financial situation. Even cards that seem extremely generous in terms of features and benefits, for example, might end up costing you more in the long run if they don’t fit in with your lifestyle and spending patterns. This is why it’s important to either consult with a loan specialist or dig in deep to the details of a card’s offerings and requirements on your own.

If you’re looking to integrate a credit card strategy into your loan portfolio, here are some of the most important things you need to know before jumping in.

Credit Card Dangers

Before you dive into leveraging your credit card strategy, you have to be fully aware of the risks and dangers of misusing credit cards.

Except in the rare case of a card offering a 0% interest rate, you should expect your card will charge you 18%, 20% or even more in annual interest. Those are rates you should never be paying on consumer debt. Even a 5% interest rate is more than enough to negate any bonuses you could receive from a credit card, so commit yourself to never carrying a balance on your credit cards. If you can’t keep this promise, then you shouldn’t be trying to leverage credit card gains, as you will only end up spiraling down a financial hole that can reach all the way to bankruptcy.

Not only can misusing cards sap all of your cash flow, it can also damage your credit report to the point that you may not even qualify for a home mortgage, an auto loan or even an apartment rental. If you do qualify, you’ll likely pay sky-high interest rates.

If you’re planning on using credit cards to gain financially, you’ll also have to be organized. If you have a portfolio of credit cards and are late on even one payment, the damage to your credit score can be significant. For an extended period of time, you should expect to pay higher interest rates on any loans you take out, including your credit cards.

Benefits of a Credit Card Strategy

With all of the caveats out of the way, it’s time to look at how credit cards, when prudently used, can offer great rewards and perks.

Sign-Up Bonuses

The headline draw when it comes to credit card perks comes in the form of a sign-up bonus. The rewards card world is so competitive these days that any card – particularly one that may charge an annual fee – needs to make a splash with the size of its sign-up bonus. In many cases, you can earn 50,000 miles or more for an airline rewards card, for example, just for spending $3,000 in the first three months after you open a card. In most cases, that’s enough for two domestic roundtrip tickets, which can reach a combined value of $1,000 or even more. Other cards might offer you six figures of rewards, such as 100,000 hotel points that may be good enough for four or more free stays. These types of rewards can provide immense value for even the occasional traveler.

Intro APRs

If you’re looking for low-cost financing, leveraging credit cards might not be the first option that pops into your head. But in a world where personal loan rates are touching double digits, a card with a 0% introductory rate can provide you with lots of leverage. Some cards offer 0% introductory APRs on purchases and/or balance transfers for 18 months or even more. While you should never run up debt you can’t pay off, if you have high-rate outstanding balances – or an expensive project coming up that you want to finance at no cost – a 0% introductory rate can save you lots of money.

Features and Benefits

Each rewards card has its own benefit structure, and you’ll have to analyze which ones work best for your personal spending patterns. For example, a card that offers 5x points on airfare isn’t much use if you never leave your house, while a card with 5x points on Lyft and Uber rides may not do anything for you if you always take public transportation. Credit card issuers love to make long lists of benefits their cards offer, from free baggage and airport lounge access to primary car rental protection and fee rebates, but if these are perks you’ll never use, it’s time to move on to the next option.

Factors To Consider

If you’re committed to using credit cards responsibly and understand both the perks and the potential pitfalls of using them, you’re almost ready to dive in and begin leveraging their rewards. But there are a couple of final factors to consider before plunging into a credit card strategy.

Credit Score Effects

Beyond the damage you can cause to your credit score by running up debt and/or missing payments, you’ll also lose a few points every time you apply for a new credit card. Although your score will generally recover from this dip relatively quickly, it’s something to be aware of if you intend to apply for numerous cards over a short period of time.

Fees

It’s always important to do the math and compute the benefit you’re getting from a card vs. the annual fee you’re paying. The top-tier rewards cards can charge $500 or more per year just for the privilege of using them, so you’ll have to ensure that you’ll consistently garner enough rewards to more than offset this cost. Depending on your personal financial situation, lifestyle and spending patterns, some rewards cards may be a no-brainer, while others will be ones that you want to avoid.

Examples of High-Reward Cards

Choosing the right rewards card is a very personal decision, but here are two that offer a wide range of benefits that tend to appeal to a broad range of users.

Capital One Venture X

The Capital One Venture X card carries a $395 annual fee, but its long list of features and benefits can easily outweigh its cost. Here are the headline perks of the Capital One Venture X card:

75,000-mile sign-up bonus after spending $4,000 in the first three months of card ownership, equivalent to $750 in travel credits
5x points on airfare and 10x points on hotels booked through Capital One Travel
$300 annual travel credit for spending via the Capital One Travel portal
$100 rebate for Global Entry or TSA PreCheck applications every four years
Free Priority Pass Select membership for both the primary card holder and any authorized users
Access to Capital One lounges
10,000-mile anniversary bonus every year, equivalent to $100 in travel credits
Cell phone protection up to $800
No foreign transaction fees
Hertz President’s Circle status

The Capital One Venture X card provides excellent value, but is obviously geared towards travelers.

Chase Sapphire Preferred

The Chase Sapphire Preferred card offers a wide range of benefits for a mid-tier card, but it only charges a $95 annual fee. This makes it much more palatable for most credit card users. Headline features of the Chase Sapphire Preferred card are as follows:

60,000-point sign-up bonus after spending $4,000 in the first three months after opening account, worth $750 in travel on the Chase Ultimate Rewards portal
5x points on travel booked through Chase Ultimate Rewards
$50 annual hotel credit when booked through Chase Ultimate Rewards
3x points on dining, online grocery purchases and streaming services
10% anniversary points boost
5x points on Lyft
DoorDash DashPash subscription
No foreign transaction fees

The Chase Sapphire Preferred card doesn’t offer quite the level of perks as the Capital One Venture X card, but it also has an annual fee that is $300 less and offers 3x points on dining, online groceries and streaming services. Which card is better fit for you will be a personal decision.

Ryan Kelly

With over 10 years of direct experience in the lending space, Lendzi’s leaders have established over 60 partnerships with top lending institutions and have overseen an excess of $500 million raised for entrepreneurs across America.