Which Credit Card Should We Get?

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Points and Miles have allowed us to travel in a way we couldn’t do on our own. Many of these points have been earned through credit cards. Our travel plans have been put on hold during the last year, so we’ve pivoted to earning cash back for our credit card spending.

We’re looking to sign up for a new cash back credit card and we’ve narrowed it down to two options. 

Card Number #1 – This card earns a sign-up bonus of 40,000 points for spending $3000 in the first 90 days. The 40,000 points can be cashed in for $400.  It also earns 2% for all ongoing spending.  This card comes with a $49 annual fee.

Card Number #2 – This card earns 3% on all spending for the first year.  The 3% comes in two parts.  We will earn 1.5% each month on all spending, and then at the end of 12 months, all that years earning will be matched.  The result is 3% on all first year spend. This card does not have an annual fee. 

What Card is Better?

Which of these two cards will generate a better return on our spending?  Card #1 has a nice upfront welcome bonus, but Card #2 earns more points for everyday spending.  So which card is best for us?  The answer depends on how much we will spend during the first 12 months of card ownership.  Here are two scenarios: 

Scenario #1

Let’s say we spend a total of $3000 over the first twelve months.  Which card will earn more in rewards?  Let’s do the math.

Card #1 – If we spend exactly $3000 on Card #1, we’ll earn a total of $411 dollars.  It breaks down as follows: 

  • $400 in points for the Welcome Bonus 
  • $60 in points for spending the initial $3000 ($3000 x 2%= $60) 
  • Minus $49 for the Annual Fee

Card #2 – If we spend $3000 dollars on Card #2, we would earn a total of $90 dollars ($3000 x 3% = $90).  

In Scenario 1 – Card #1 clearly wins, $411 dollars is greater than $90 dollars. 

Scenario #2

What if we bump our spending to a total of $48,000 over the course of a year?  This would be an average spend of $4000 a month. 

Card #1 – With Card #1 we would earn a grand total of $1311 dollars. It would break down as follows: 

  • $400 for the Welcome Bonus 
  • $960 for spending $48,000 ($48,000 x 2%= $960) 
  • Minus $49 for the Annual Fee

Card #2 – With Card #2 we would earn $1400 dollars  ($48,000 x 3%= $1440).

In Scenario 2, Card #2 wins by a difference of $129 dollars.   

The Break Even Point

The break even point between the two cards is about $35,000 in first year spending.  Meaning, if we put $35,000 dollars of spend on both cards, they would each earn about $1150 dollars.  It would be a tie.  This can help make the decision on what card to pick.  If we plan on spending more than $35,000 dollars in the first year, we would lean towards Card #2, if we plan on spending less than $35,000 dollars, we would lean towards Card #1. 

What Card Should We Get?

Based on our anticipated spending, the 3% card, should come out ahead. We project putting more than $35,000 dollars of spending over the next twelve months.  So Card #2 it is! 

What card would work best for you?

How do you chose between credit cards?