Saturday, October 19, 2013

Maximizing the Value of the Chase Sapphire Preferred and Chase Freedom Credit Cards

Key Link: Apply for the Chase Freedom with a sign-up bonus of 10,000 Ultimate Rewards points after spending $500 within the first 3 months

I've had the Chase Freedom credit card for many years but it wasn't until just recently that I explored (and figured out) how to maximize its value. In its simplest use, the card offers 5% cash back on quarterly rotating categories and 1% on everything else with no annual fee.

That in itself makes it a good card to keep forever since the average age of your credit card accounts and the age of your oldest account has a meaningful impact on your credit score.

See also: Does churning credit cards damage your credit score?

But there are two key concepts you need to understand in order to take the value of this card to the next level:

Trick 1: Pair it with an annual fee based Chase Ultimate Rewards card to enable quick conversion of points earned on the Chase Freedom into more-valuable-than-cash airline and hotel points

For many years I'd convert the points earned on my Chase Freedom into cashback. Cash is king right? Not necessarily. If you also have a fee based Chase card like the Sapphire Preferred or the Ink (business) cards you can combine the points earned on the Freedom with the points associated with your fee based card to transfer them to airline/hotel travel partners with favorable award availability and redemption levels like United and Hyatt. It pains me when I look back at my lowly past redemptions.

This makes Ultimate Rewards worth more than a penny if you like to travel and can redeem them effectively. For example, if you transfer 60,000 Ultimate Rewards points to United for a roundtrip ticket to Europe that would normally cost $1,600 that's a redemption worth $0.026 per point. This is much more valuable than redeeming for cashback. And the values get even more attractive when redeeming for upper class flights - especially internationally.

That's why I get excited about 5x Ultimate Rewards points (as opposed to 5% cashback). It's almost like 10+% back if you can redeem them effectively.

Trick 2: Maximize the 5x Categories by Category/Time Shifting and Manufacturing Spend

With the Chase Freedom, each quarter you can earn 5x (capped at $1,500 in spending) in rotating categories. That's 30k points per year for just $6k spent annually. Here are the categories for 2013:


A normal person would look at these and think "Hmm - I spend quite a bit on gas and restaurants. I should be able to get some nice 5x rewards." But in order to maximize these categories there are a few simple tricks you can leverage.

First, consider drugstores. Have you seen the massive gift card racks they have at drugstores like CVS? You can buy merchant gift cards for retailers like Amazon, gas stations, retailers and more. This is called category shifting. You spend money at drugstores (on gift cards) for 5x back and you spend the gift cards elsewhere.

Time shifting is when you buy these gift cards for future use. You want to maximize the $1,500 for the quarter but you're not going to immediately use the gift cards. So for example you buy retailer gift cards at a gas station when that's the bonus category -or- gas gift cards at Lowe's when that's the category and use them over the next couple months.

I'm personally not a fan of time shifting because I don't like to prepay for stuff. I prefer to "manufacture" spend. For example, at CVS they sell Visa gift cards and various "reload" cards that, for about a ~1% fee can generate bonused spend then be quickly liquidated. Since you're getting 5x (actually 10+% thanks to Trick #1) you can easily stomach a 1% fee. You then take these near-cash equivalents and liquidate them using various techniques. Loading Vanilla Reloads to Bluebird then paying bills (even your mortgage) or the credit card bill itself is the simplest and longest running scheme around. It sounds crazy at first but if you're interested it's not that difficult at all.

Sign-up Considerations


First, know your credit score and what goes into it. Read Does Churning Credit Cards Damage Your Credit Score for more info. If your credit score is south of 720 I'd work on improving your score up before playing any games with credit card sign ups.

Then, there are different things to consider depending on your credit history and the current cards you carry. If you've applied for a credit card within the past 90 days, especially another Chase card, I'd wait until 90+ days have passed before signing up for another.

If you already have a lot (as in, like, more than 6) Chase credit cards, especially if you've signed up for them within the last year, you might want to hold off on signing up for more. Chase allows users to have an indeterminate number of their cards but at some point you start to hit a wall with them. You can usually swap out a card you're not using when you apply and sometimes it requires a call to their reconsideration line if your application goes pending or is denied.

But you need to be choosy when picking your Chase cards because they have a ton of great ones and you only have so many "slots" with any one bank. I think the Chase Freedom is worthy of a slot though because:

  1. It has no annual fee (so you can keep it forever and use it to build up your credit score)
  2. It earns valuable and flexible Ultimate Rewards points (when paired with a fee based Chase card)

Sign-up Strategies


Again, everyone's situation is different. But here's what I'd do in terms of signing up for the Chase Freedom and Chase Sapphire Preferred with some family and friends in mind at various stages in life. Remember - you've got to have a fee based card to unlock the potential of the Chase Freedom card.

Young Single

I'd go for the Chase Freedom first to start building your credit history. Since it has no annual fee you can keep it forever and banks like to see that you've had one or two long standing credit cards in your portfolio.

Once you start accruing some points and are within striking distance (40k) of a desirable redemption sign up for the Chase Sapphire Preferred. Within the first year of having the Sapphire Preferred (before the annual fee hits) transfer the ponits to United, Hyatt, or other travel partner.

Single with Established Credit

Tough call here. There are so many great cards out there and if you're running enough natural spending through your credit cards (due to reimbursed business expenses and "other stuff") you can probably justify the annual fee of the Sapphire Preferred ($95). I'd go for the Sapphire Preferred first and supplement with the Freedom down the line when you have a better feel for how valuable Ultimate Rewards can be.

Married

This is really the sweet spot of the Chase Ultimate Rewards scheme. You can transfer points to your spouse without a fee so you only need to have one fee based Chase card per family. That means you can each have a Chase Freedom which effectively gives you $3,000 per quarter you can earn 5x with plus you can each have a Sapphire Preferred (one of which you'd likely cancel the first year after receiving the signup bonus).

On top of this, you can add each other as authorized users (if desired) to one another's cards. Typically, I find that one of the two partners in a marriage are interested in points and miles. The other just goes along and is willing to tolerate it. For situations like this, add the point junkie as an authorized user of the cards with bonused spend categories that have a quarterly cap so they can do the hard work for both spouses.

Caution: Adding a person as an authorized user of a card will make the balance and usage of that card appear on their credit score. So only do this in cases where it's worth it. For me, it's worth it if 1) The card gives you points for adding an authorized user (the Chase United card gives 5k) or 2) The card continually needs to be accessed to rack up points and miles in bonused categories.

Advanced Maneuvers

Do you have a small business? Even a fledgling one? Have you ever thought of starting a fledgling one? The Chase Ink business cards that carry an annual fee also earn Ultimate Rewards, come with a lucrative 50k point sign up bonus and earn 5x at office supply stores and telecom services. The 5x at office supply stores presents a perpetual category shifting opportunity. These cards pair brilliantly with the Freedom and Sapphire Preferred, but to minimize fees you only need to carry one fee based Chase card per family any time you want to transfer to airline/hotel partners.

You could sign up for the Chase Sapphire Preferred and then the Chase Freedom and earn a signup for both. Then, I've heard you can "downgrade" the Sapphire Preferred to a fee-free Sapphire variant of the card OR a second Freedom card and have both a Freedom MasterCard and a Visa. This could effectively give you even more ceiling with which to earn 5x in rotating categories and would be worth pursuing so long as you have one fee based card you can use (either your spouse's or an Ink business card). I haven't tried this maneuver yet so I can't comment on how it's working recently.

If you sign up for the card through the link below I'll get 5,000 points for referring you and you'll get 10,000 points. I wish I could tell you that you could sign up yourself then refer friends or your spouse to get additional miles. But the current Chase Refer a Friend promotion is only available to existing cardholders as of the date the promotion started. Hopefully they'll run this same promotion down the road and you too can earn referral bonuses. But if you had a Sapphire Preferred -or- a Freedom before this offer started running you can refer your spouse or your other friends and family. To see if you're eligible to refer go here and enter your name/zip/last 4 digits on your card.

Conclusion


The Chase Freedom card is a terrific card to get if you like to travel and don't mind interacting with your cards enough to maximize its value. By pairing it with a fee based Chase card like the Sapphire Preferred you can maximize the value of the points earned with the no fee Chase Freedom card.

Feel free to drop me an email if you have questions.

Key Link: Apply for the Chase Freedom with a sign-up bonus of 10,000 Ultimate Rewards points after spending $500 within the first 3 months


1 comment:

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