serinemolecule:

spiralingintocontrol:

serinemolecule:

Using a credit card is like paying with cash, except you also get free money and other benefits.

“But Serine, there’s no such thing as a free lunch! [1] Where does the money come from?”

I’m glad you asked. When you buy something with cash, the seller gets 100% of what you pay. When you use a credit card, the seller gets around 97% of what you pay, and the companies involved in handling the payment get around 3%. [2] This includes the credit card company, which is very willing to give you money and other benefits if you choose them to get the rest of that 3%. [3]

Sellers are willing to give up 3% because handling credit cards is so much easier than cash. You don’t have to count change, and you have a computer record of who paid how much, so it’s easy to figure out who’s lying when the customer said they paid. Not to mention it eliminates the problem of cashiers stealing money by pocketing customers’ money [4]. Also not to mention the store wants the customer to be happy (happy customers spend more) (customers hate having to pay a fee to use a credit card).

Anyway, in the general case, credit cards are basically always a good thing, and you should basically always use them. [5]

When not to credit card

If you are irresponsible with money, and are afraid you will spend more money than you have, you should not use a credit card. Never carry a balance on a credit card (pay off less than the total amount you owe), it piles up and ruins your life. You should spend money on getting things you want, not on paying off interest.

What benefits you get from using credit cards

Most credit cards will give you 1%-2% cash back (for each dollar you spend, you get a certain percentage back in free money).

Basically all credit cards give you the ability to chargeback. This means that if some business steals your money (charges you more than you owe, etc) and you can prove it, you can call the credit card company and tell them to take your money back. Note that this is a last resort (only to be used after you contact the business and they don’t give you your money back), and will generally result in the business completely cutting off contact with you (for instance, if you chargeback Steam, you’ll lose access to all your Steam games etc).

Credit cards also act as a short-term loan. If you ever need a payday loan, a credit card will give you significantly less interest than an actual payday loan. You never want a credit card as a long-term loan (the rates are horrible), but they actually give you close to the best possible rate for a short-term loan. Just remember that debt is evil and never to fall into it.

Other benefits vary wildly and are specific to the card, but common benefits include various forms of insurance (car insurance on any rental car you rent with the credit card, warranty on anything you buy, etc).

Which card to get

It’s actually really easy to choose a credit card. If you’re in the US, here is Serine’s One-Step Guide:

Do you spend more than $2500 per year in travel (hotels, flights, Ubers, etc) and restaurants?

– No -> Get the Citi DoubleCash

– Yes -> Get the Chase Sapphire Reserve

In some extremely obscure situations, you might want other cards, but I’ll cover those after I cover these two cards.

The Citi DoubleCash

The Citi DoubleCash has no yearly fee, and gives you 2% cash back, effectively. This makes it better in every way than most other cards.

Some cards give 1% cash back and a rotating 5% category. They will give you a headache trying to optimize them and you will still get less money back compared to the Citi DoubleCash, in the end.

Some cards give you points that you can spend using a complicated procedure, which will be worth approximately 2% if you can spend them perfectly. Just use the Citi DoubleCash, and skip the complicated procedure.

The Chase Sapphire Reserve

The Chase Sapphire Reserve has a $450 yearly fee, and gives a huge number of benefits that are totally worth it if you spend a decent amount of money. Also it looks really cool because it’s metal and black. [6]

It comes with $300 of travel credit per year, which you can blow through in, like, a single flight, or like a few days of hotel, or like a normal amount of Ubering (anyone who’s even considering this card should have no problem spending that much). So the yearly fee is effectively $150.

It gives you 3 points per dollar on travel and restaurants, and 1 point per dollar on anything else. “Points” can and should be converted to frequent flyer miles, at which point they’re worth 2-4 cents each if you put them towards international flights, especially international first-class flights.

It also comes with a pile of side-benefits, like free Priority Pass membership (gives access to a bunch of airport lounges), and free TSA Global Entry (lets you basically skip airport security and customs).

Assuming you spend enough and you’re willing to spend the effort optimizing flyer miles, it basically pays for itself and the other benefits are free.

Honorable Mention: The AmEx Platinum

I know I didn’t mention the AmEx Platinum at all, but if you have lots of money and want the best benefits on a card (or you take a lot of flights), the AmEx Platinum is probably the card for you.

The AmEx Platinum costs $550 per year, and is a luxury card pretty similar to the Chase Sapphire Reserve. Its biggest advantage is that it has much better airport lounge coverage in the US.

Priority Pass (which comes with both the Chase and the AmEx) gives you lounge access for most international flights, but the AmEx Platinum also gives you lounge access for US domestic flights.

It gives 5 points/dollar for airfare and AmEx Travel hotel purchases, and 1 point/dollar for other purchases, and its points can also be turned into flyer miles.

Other advantages include Gold membership status at Hilton, Marriott, Starwood, and Ritz-Carlton hotels. Mostly this means guaranteed late-checkout at all of those except Hilton, and, like, free bottled water sometimes.

Instead of the $300 travel credit, though, the Platinum has a $200 airline fee credit (abusable to buy gift cards) and a $200 Uber credit (spread out across 12 months, so hard to maximize unless you use Uber all the time). It’s harder to max these out, but if you do, it’s also effectively $150/year.

Overall, the main reason you’d actually want the Platinum over the Sapphire Reserve is if you fly a lot in the US and really want the additional airport lounges.

Extremely obscure situations

So the most common one is: If you have a ton of free time and spend a decent amount of money, you might be interested in churning. I don’t really want anything to do with churning so you’re going to have to learn how to do it from someone else (google it, I guess).

If you travel internationally, be aware that the Citi DoubleCash has a foreign transaction fee. It’s still worth it (2%, which is still less than the fee you’ll be charged by most money exchangers – Wells Fargo takes like 5%), but it’s also not very hard to just get a credit card that doesn’t have that fee. The Amazon Prime card and the Costco credit card are good options (these two are pretty good cards to have in general, honestly; they have no yearly fee and a few specific uses, just don’t use them as your main card because they don’t have the 2% base rate the DoubleCash has).

That’s it

I haven’t actually taught you how to spend money wisely (maybe that’ll be a different post), but at least you can get more value out of the money you do spend now.

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[1] In a way, there’s no such thing as a free lunch, but in a way, there totally is. Like, think about breathing (but not too hard – I don’t want you to start manually breathing – …I’m sorry). There are some minor trade-offs (you have to use energy) and situations where you shouldn’t (do not breathe while underwater unless you have special equipment) but overall, it’s basically always correct to choose “breathing” over “not breathing”.

[2] The 3%ish is split kind of complicatedly, in terms of who gets what. The credit card company definitely gets most of it, though.

[3] And also to get your late payment fees and interest and stuff, but honestly, credit card rewards come out of the processing fee.

[4] It’s easiest for cashiers to steal money if you’re selling something hard to track, like french fries. A cashier can give a customer some french fries, pocket the customer’s money, and the store owner would never know. This is why a lot of fast food places say “free food if we don’t give you a receipt”. The receipt makes sure the cashier gives the store owner the money.

[5] Some stores don’t accept credit cards. These are very very rare in the US, and mostly restricted to, like, certain vending machines, and tiny stores that hate the 3% transaction fee. Also, a lot of service workers prefer you to tip in cash, because that makes tax evasion easier (it’s up to you whether you consider this a good thing or a bad thing).

[6] You can tell people it’s “the black card” and they’ll totally believe you (it’s not) (also remember to tell them you were joking about it being “the black card”; you don’t want to be that asshole who lies about dumb stuff like this).

Interesting! On a politics note, I will say that at least some of the “free money” you get from credit cards comes from secretly skimming off of everyone else: Credit card companies generally prohibit stores from charging more to credit card users, which means the fees have to be spread out over everyone by increasing prices slightly on average.

Maybe I should get the Chase Sapphire Reserve… I travel a lot…

I didn’t go over that part, because opinions are kind of mixed on whether or not handling cash or handling credit cards is actually more expensive, after all the fees and costs and varying levels of theft.

Like, fraud costs, miscounting money, etc are a lot lower with credit cards, so who is really skimming off whom?

(Empirically, though, mom-and-pop small businesses seem to prefer cash, so feel free to use cash at those places, if it makes you feel better.)

Tags:

#interesting #home of the brave #adventures in human capitalism #all I have right now is a little 0.5% card from my bank because it was all I could get with no credit history #(fortunately I’ve been with that bank for 10+ years and never caused them any problems) #(so they trusted me enough to help me bootstrap into having a credit history) #but yeah I definitely do take cashback into account for financial analyses #(”hey Dad can we put my university course on your card? we’ll save an extra four dollars versus putting it on mine”) #anyway I found this post buried in my open tabs and realised I forgot to reblog it #so here it is