It’s Sebastian from ASIPI and today we’re going to talk about why I don’t have a store credit card. But first I have to tell you that we talk about how to maximize the value of your credit cards, how to get the most cash back and also how to travel for free in our channel? If that sounds interesting to you, subscribe to our channel.
So I get this question a lot and I understand why people ask a lot about it. Because there are a lot of cards that have a lot of value. Personally, there are three main reasons why I don’t get store cards. The first point is the one that probably matters the most on whether you’re going to keep shopping at that same place.
For Banana Republic, you get a discount for shopping there. If you don’t shop there, what’s the point? I can say that I like Banana Republic’s shirts, but in 10 years, 20 years or 30 years, will you still keep buying from Banana? Will the company be in business?
For a lot of those other big-box stores, once they go out of business, I’m not sure what will happen to your card. I guess someone else buys that card from you, but it might not have any value. And then you’re in this position where you keep the card, because it helps your credit profile which has no use. One thing I really recommend people to focus on while they’re in their 20s and 30s is to get a lot of credit cards to build a strong base, and ideally define cards that have no annual fees. So you might be looking at store cards. But if the store either goes out of business or it’s no longer cool or you don’t want to shop there anymore, it’s not going to work out.
Another good example would be Best Buy. If you went back to 10 years ago and you asked me what credit card I would want from a store, I probably said the one from Best Buy, because I found it convenient to buy electronics. But if you look at me, I don’t shop there. If there is a very specific discount on the exact items, I might go there. If I’m buying normal stuff, I’m not going to go through Best Buy. It’s more of a hassle than going through Amazon. You get a discount there, so it should go into your calculation, but we’re going to cover that a bit more in the long-term value than the short term value.
If you look at the sign up bonuses for most cards, they aren’t that great. So a good example of this would be the Costco card, you get a five-dollar chicken for getting the target. What most of their store cards do is to get an increased discount on your first, maybe 10% to 20% discount. If you spend $1000 and you get 10% off, that is $100 which might be fine, but you have to see whether the long term value makes sense. For most people who get cards, they don’t think like that. They might be only doing $100 purchase for 10% off or 20% off, which is 10 or 20 dollars. So if you optimize your spend, you can get a lot more cash back and a lot more flexibility.For example, you can get 15,000 ultimate reward points from the Chase Freedom Card and if you convert that to cash, that is a $150. If you get that from $500 of spend, it’s a 35% return on spend. And the points of Chase Sapphire Reserve can be worth $300 and you get $50. After your first purchase, the cool thing is that they have a cash back match program at the end of the year.
You can get all the cash back including that $50, which is $100 in value after your first purchase. It does take two or three months to toast, but it’s a no-brainer because you could buy something for $5 and get $50 back and can be added into your travel cards at the Chase Hyatt card. You get two free nights at any of your hotels for $2,000 of minimums in the first three months. Those two nights could be anywhere, which means you can pick the most expensive hotels.
So the idea is that by getting these cards, you have to spend more in order to get more. But if you are spending this money, why not maximize the return on your spend? Personally, this is how you get value on your spending, so you can put in$2,000 of spend and you’re getting $2,000 or $3,000 back in value, but these cards have annual fees.
If there is a $500 annual fee, you have to spend two thousand dollars, $2,000 minus the 500, it is $1,500, there’s still 75% per tournament with most store cards. If you have a 5% card and you spend $2,000, you’re getting $100. A sign up bonus might be a chicken, which is almost no value. $200 net value can print to $1,500 net value to me. It’s a no-brainer for Costco in particular, a lot of people like to point out that you double the executive membership benefit, normally with executive cards, you get 2% back and now with the Costco card, you’re getting an additional 2% back which is 4%. But you can use any other credit card and you still get that 2%, which has no use.
I could use a Chase card, which is a Visa card at Costco, with the executive card, I still get that 2%. So you can’t consider in your math because it’s going to be a consistent number, regardless of what views you’re looking at.
The final thing is long-term value and the thing is that you can get a lot more value from it. If you do things correctly, our first example is that we are going to look at the Chase Freedom Card and buy a banana republic gift card from walking so grocery stores and drugstores, art products category for this quarter.
So you can buy up to $1,500 and get 5X back. If you buy $1500, because you’re going to shop at Banana Republic for up to $1500 for the next 6 to 12 months, the thing is that if you do your points are potentially worth more than 1 cents per point.
If you cash out your points as a statement credit, they’re worth at least 1 cents per point. So you get 5% back. If you decide to book travel and if you have a card of Chase Sapphire reserve, your points are worth between 1.5 cents per point to 2 cents per point, which means that it’s going to be 85% back, you’re getting 7.5 to 10% back on travel.
For a second example, we are going to look at Costco, with the conscript card, you get 2% back. We’ll discover a card, you get 5% back on wholesale slots. So one weird thing is that you can’t use your Discover eight card in person in the store, but you can use it online at Costco. com. If you will buy stuff online, the cashback works up really well. But if you want to shop at store, what you can do is to buy Costco cash cards in a lot of different increments, but you can buy it online, order it and it will be mailed to you. Once it is mailed to you, you can use the cards and score like you normally would. You’re getting 10% back on these purchases, assuming that you’re in your first year. If you’re not in your first year, the percent you get is still better than the 2% you get with the Costco card.
ou also need a lot of credit cards in order to cover all these different stores. If you shop at best policy shop at Costco, Amazon and Banana Republic, that’s four separate credit cards. You can almost cover all those bases with the Chase Freedom Card. The only thing is that you have to plan ahead, since they are grocery stores and Stroke stores, you can buy the gift cards that you need for next 6 to 12 months. But you have to do that while it’s still the right time and that spend has to be below $1,500. Otherwise, you’re not going to get any more benefit. If I’m going to spend $1,500 at Banana Republic, I would buy that right now, because I’m going to spend it all in the next year. Another consideration is that your cap that fifteen hundred dollars per card per quarter, so the easy solution there is to get a second Chase Freedom Card.
At the same time, you’ll discover you can maximize your quarters by having more cards if you need them. And there are other 5X cards which we haven’t discussed. As for me, the value of the other 5X cards are too fixed at 5% compared to maybe 7.5 or 10%.
The biggest cost of using gift cards instead of credit cards is that you lose the extended warranty benefits. If you buy a lot of electronics, this would be very valuable. The thing you need to consider is how many of these purchases you need to do. If you buy a new computer and you want to extend a warranty once every three years, you can probably put that on a Sapphire reserve. You buy a-thousand-dollar computer. For example, you lose that 5% that you would have gone with the Best Buy credit card, which is 50 dollars but with the Chase Sapphire Reserve, you’re getting points. $30 isn’t enough for me to get a credit card, especially if it’s on a purchase. $30 every three years over ten years, which is about $90, maybe $100 in savings. If you make a lot of big purchases, the cards I consider would be the Amazon card, Best Buy card or another electronic store card.
The cost for card doesn’t make sense to me. The main reason is that you have so much extended warranty with them. You can return anything you want, I think that they would help you if something broke or stopped working, so the extended warranty for that card isn’t that valuable, because Costco is so flexible with their membership.
I think they stand behind their products and they try to help you when there is a warranty issue or when something does break, depending on what the situation is, when I get a store credit card. I think the one situation would be if I’m taking advantage of the perks, that card offers above the 5X back.
For example, the Banana Republic credit card gives you free alterations almost forever. If I am an abnormal size or if their shirts don’t fit me, I would get the card because I’m saving $5 or $10 for every single shirt and every single pair of pants I’m getting.
So let me know if you have any questions, my question for you is what your thoughts on store cards are. If you do, why do you have it, is there a specific perk that you rely on? Let me know in the comments down below, I hope you like it. See you next time.