Category chasing vs. minimum spending

9

Recently I published a series of posts detailing the cards that offer the best rewards when used together.  For example, if you’re at a grocery store, pull out the card that earns 4 points per dollar.  Paying for flights?  Use the 5X airfare card.  Pumping gas?… You get the idea.  Here are those posts:

  • Super credit card combos: This post covered several great combinations of cards to use when you want to earn points that can be redeemed for outsized travel value by paying for travel or by transferring points to airline or hotel programs to book high value awards.
  • Super mixed credit card combo: This post discussed the ideal combination of cards to keep in your wallet if your goal is to earn transferable points, but you’re OK with earning points in multiple programs.
  • Super combos cash back credit cards: In this post I looked at the best combinations of cash back credit cards.

In response to one of these posts, a reader argued that it’s not worth the trouble to chase category bonuses.  A better solution is arguably to focus all spend on the one card you’ve recently signed up for in order to meet minimum spend requirements.  Let’s dig into these approaches to decide which is best…

Minimum spending approach

Credit card signup offers usually require a set amount of spend within a set time frame in order to get a big welcome bonus.  While details vary, a typical offer requires spending anywhere from $3,000 to $5,000 in 3 months in order to earn 50,000 points or miles.  Offers like this translate to earning 10 to 16 points per dollar for all spend, up to the minimum spend requirement.  And that doesn’t even include the points earned as usual with the credit card for that same spend.  So, worst case, we’re looking at earning 11 to 17 points per dollar until the minimum spend is met.

At a high level, the idea here is to sign up for a card, then put all spend on that card until the minimum spend is met.  Then, sign up for another card and put all spend on that card… etc.

With this approach, you automatically earn 11 to 17 points per dollar everywhere.  Obviously this approach is far better than category chasing, where you’ll generally earn 2 to 5 points per dollar for your spend.  Right?

Category chasing

Category chasing is the approach I’ve written a lot about lately.  The idea is to keep multiple cards in your wallet (or in your phone or watch) so that you can always use the best rewards earning card for each purchase.

Where do new credit card bonuses come into play?  In my case, I tend to meet minimum spend on new cards without ever putting them in my wallet.  I use them at home to pay large bills that usually wouldn’t earn a category bonus anyway, or I make Kiva loans, or do other things to increase credit cards spend which are listed in our Manufactured Spending Complete Guide.  This way I don’t have to do much to keep track of my minimum spending.  I usually get it done all at once and then file the card away.

By doing things this way, I get the benefits of category chasing and the rewards from new credit card signups.

Further, if I ever return items or hope to take advantage of credit card purchase protections or travel protections, it’s relatively easy for me to know which credit card I originally used for that spend.  If I were cycling cards in and out of my wallet with each new credit card signup, tracking old purchases would be much harder.

Category chasing vs. minimum spending scenario

Imagine signing up for a card that offers $500 after $5K spend.  And, for the sake of argument, let’s say that the card offers 1.5% cash back on spend.  Further, imagine that you could earn an average of 4% back on $5K spend through category chasing.

If you could only do one or the other, minimum spending wins easily:

  • Category chasing: 4% of $5K = $200
  • Minimum spending: 1.5% of $5K = $75 + $500 (welcome bonus) = $575

But, let’s say that the category chaser also signs up for the new card but uses techniques to increase spend to cover the $5K required while spending $5K on day to day purchases with the best card for each situation.  Let’s also assume that the techniques to increase spend have a cost. Let’s conservatively say that those costs to increase spend average 2%.  In that case:

  • Category chasing:
    • Natural spend: 4% of $5K = $200
    • Cost of manufacturing additional $5K: 2% of $5K = ($100)
    • Welcome bonus: $500
    • Total rewards: $600
  • Minimum spending: 1.5% of $5K = $75 + $500 (welcome bonus) = $575

Here you can see that category chasing comes out slightly ahead.  The advantage is bigger, though, when the cost of manufacturing spend is less.

Recommendation

Do whatever works best for you.  As you can see above, adding together category chasing and welcome bonus hunting results in greater rewards than either alone.  That said, the advantage of category chasing over minimum spending is slight.  That’s why I think you should do whatever you’re most comfortable with.  If you find it easiest to always use the latest card for everything, then do that.  If you prefer to separate your welcome bonus hunting from category chasing, as I do, then do that.

I suspect that many people do a hybrid approach: for most purchases they use the card with which they are working on minimum spend, but for some purchases where they have a particularly good category bonus, they use that card instead.  That’s fine too.

Email:*
Please enter all required fields Click to hide
Correct invalid entries Click to hide
Subscribe
Notify of
guest

This site uses Akismet to reduce spam. Learn how your comment data is processed.

9 Comments
oldest
newest most voted
Inline Feedbacks
View all comments