M is for Money

Credit cards, like any financial tool, need to mesh with your lifestyle and goals. Late last year we chose the Amex Starwood Preferred Guest (SPG) card to earn points towards our honeymoon. A travel rewards card in general does not fit well with our lifestyle and spending habits, but we had a specific goal in mind that the card could help us achieve. Now that the honeymoon is booked the card has outlived its usefulness, making it time once again to go credit card shopping.

For years the Chase Freedom card has served as my primary credit card. In short time I accumulated over $1000 in cash back thanks to their generous reward system. Unfortunately they decided to gut the program recently, killing the card’s competitive advantage. This leaves me in need of both an Amex card to replace the Starwood one and a cash back reward card to replace the Freedom card – enter Blue Cash from American Express.

There are many cash back reward credit cards and a huge variety of reward programs. Many offer different levels of reward based on categories of spending, say 1% on all purchases but 3% on gasoline and groceries. Other cards emphasize dining out or travel related purchases instead. The first step in finding the right card is to determine your normal spending habits, how much do you spend and where?

There are a couple of general traits that define our spending, one we don’t eat out often. We prefer to prepare our own meals, so a card that emphasizes grocery store purchases, rather than restaurants, makes sense for us. Two we don’t travel often, so a card that rewards you for travel won’t do us much good. Three we have relatively short commutes, so gasoline is not a big part of our budget. Finally, we tend to spend a lot! We racked up $23,000 in 6 months on the SPG card, though that was unusual due to some home improvement spending. With the wedding and honeymoon coming up I expect our spending to remain high through the rest of the year.

Based on our spending characteristics I decided on the Blue Cash card from American Express. It has a tiered rewards system, once you hit $6500 in annual spending the reward level jumps to one of the highest in the industry. They also have a higher reward level for purchases at grocery stores, gas stations and drugstores, which fits well with our spending patterns. The basic cash back is 0.5% at all stores and 1.25% at grocery, gas and drug stores. Once you reach the $6500 level, the reward jumps to 1.0% at all stores and 5% at grocery, gas and drug stores. Best of all, there are no annual fees with Blue Cash, unlike the SPG card. I wish Chase would bring back the old Freedom Card rewards program, but the Blue Cash Amex looks like my next best choice.