Katherine Fan first got into credit card points after college. She lived in the U.S. and her family lived in Taiwan, and she wanted to find a way to visit them on a regular basis — but she couldn't afford the cost of airfare on her entry level salary of $28,000 a year.
She had good credit, so she signed up for a card that offered significant travel rewards for spending. And through that card, she earned enough points and miles to get deeply discounted airline tickets to Asia.
Since then, Fan, a travel and personal finance journalist who has written for The Points Guy and NerdWallet, has become a credit card points evangelist. She's used her cards to earn points for perks like hotel and air travel upgrades and cash back for gas and groceries. She says as long as you have good credit and can pay your bills on time, you can get into the points game.
The trick, she says, is to get a card that makes sense with your spending habits. For example, if you're a big traveler, you may want a card that offers perks on airfare or hotels. If you're on the road a lot, you may opt for a card that provides car insurance, car rental discounts or extra points for gas.
But be careful — it can be easy to rack up debt in the quest to earn rewards. A 2022 survey found that 60% of those who have credit card debt have owed their creditors for at least 12 months. That statistic troubles personal finance experts, because credit card interest rates are at a 30-year high.
However, if you have the financial means and discipline to move forward with credit card points, the system can provide many benefits, she says. Fan offers advice on how to get started — from how to choose the right card to what kind of credit you will need to qualify. This interview has been edited for length and clarity.
What exactly are credit card points?
Credit card points are essentially like currency. [To entice customers to borrow and spend more], credit card issuers like Mastercard, Citi or Capital One will give you points or miles to reward you for every dollar that you spend with them. And you can redeem those points to pay for travel, gift cards, groceries, even free or discounted access to events like concerts or award shows.
What do you need to get these kinds of credit cards?
Good credit. If your credit score is above a 660, you'll be eligible for some good credit cards [that offer basic perks like cash back or double points or miles for purchases]. You probably want to have something closer to a 720 credit score if you're looking for one of the premium cards, such as the American Express Platinum card or the Chase Sapphire Reserve card. Those offer big rewards like luxury hotel stays, travel lounge access and upgraded air travel.
What's the best kind of card to start out with if you're a beginner?
Get a cash back credit card for everyday groceries and gas. Make sure it's in your wallet and it's signed up for autopay on your utilities [to make sure you're using the card on a regular basis]. You'll probably end up with a few hundred to a couple thousand dollars in your bank account at the end of the year.
What should people know before signing up for a card?
Make sure you find the right fit. If you read a stellar review for a travel credit card but you don't travel very much, then maybe that one's not the best fit for you.
Consider annual fees. If you're hesitant about committing to paying an annual fee [the Chase Sapphire Reserve card, for example, has a $550 annual fee], there are a lot of great $0 annual fee credit cards out there. The Freedom Flex card from Chase comes to mind. You get 3% cash back on dining out without having to pay any annual fee and you still get good benefits on things like purchase protection for stolen or damaged items.
Some credit card issuers offer $0 annual fees for the first year but start charging fees the next year. Can I just cancel my card the next year?
Every time you open or close a card, it hurts your credit history a little bit [changing your debt to credit utilization ratio — or how much you owe compared to your overall credit limit — may impact your credit score]. So as a general rule, downgrade [to a less premium card] instead of canceling your cards.
For example, my Chase Freedom card, which has no annual fee, used to be my Chase Sapphire Reserve card, but I didn't want to pay $550 to keep that card open. Downgrading allowed me to retain my history and my credit limit as well.
The tricky thing about points is they can feel like free money. But that's not exactly true.
It can be super tempting to spend more than you should just because you can earn more points, so you have to know when to stop. You can't just go buy $500 worth of shoes and jewelry and be like, "Oh, it's fine. I'm going to get points back for this." Yes, you will. But was that $500 that you needed to spend?
You want to plan your spending around what already makes sense for your life and then see where points can offset or subsidize some of that cost.
What's your best financial advice for people starting out in credit card points?
Pay off your balances in full every month. If you forget to pay off your credit card, it's not worth it because the interest rates are so high on credit cards. So if you struggle at all with the temptation of treating a credit card like free money [rather than a loan you have to pay back], then don't get into it.
More financial tips from Life Kit
How to improve your credit score — and keep it high. If you're feeling inspired by our episode on credit card points, know that you'll need a good credit score to get started in the points game. Planet Money's Sarah Gonzalez will show you how to get there.
What you should know about inflation right now. The prices of goods and services have gone up. How much of that is due to Ukraine or the pandemic? What can our elected officials do to lower prices? NPR's Marielle Segarra and Stacey Vanek Smith tackle listener queries.
How to handle your investments when the markets are down. About 60% of Americans have some money in the stock market — and the markets are not doing great. Your knee-jerk reaction might be to sell. But experts say that's not a good idea.
Dealing with lifestyle creep. Making more money tends to lead to spending more money. It's a phenomenon known as "lifestyle creep." Paco de Leon, author of Finance for the People, shares advice on keeping your long-term financial goals in check and fending off the subconscious urge to spend more when you make more.
The digital story was edited by Malaka Gharib. We'd love to hear from you. Leave us a voicemail at 202-216-9823, or email us at LifeKit@npr.org.
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