Building and using credit should always be for your advantage, not for the bank’s, which is why it’s important to first consider your own financial situation before opening new credit cards. Today we will cover how to identify the best credit card sign up bonus and evaluate which offer (if any) makes sense for you.
As you’ve heard, Credit Card Points and Cash Back Won’t Save You! But that doesn’t mean you should avoid credit cards. You just need use them wisely and for your advantage.
If you have a history of not using credit cards properly, then you need to steer clear of them.
But if you are able to handle credit appropriately, credit can be a useful tool.
And remember, credit card companies are often hunting for the best potential customers, and to acquire the best customers they’ll often try to find ways to entice us (beyond offering a compelling credit card).
Enter sign-up bonuses.
All Credit Card Sign Up Bonuses Are Not Created Equal
When you get home, it might be common to get bombarded with letters from banks such as Citi, Chase, Capital One, etc. offering you perks to sign up for their credit cards. (For a tip on how to put an end to this junk mail, read to the end of this article!)
Credit card offers usually fall under two categories (sometimes even both):
- Interest Incentives / Perks
- Points / Cash Back Perks
Interest Perks can include a certain period (usually 12-18 months) of 0% interest or balance transfer offers, such as no fee balance transfers for a certain amount of days with a certain period of 0% interest.
Balance Transfers Can Be A Good Time To Get A Credit Card Sign Up Bonus
A balance transfer is when you move an existing credit card balance to a new card with a lower interest rate, in order to save money. This can be extremely helpful for someone carrying a high balance on a high interest rate card.
But just because you start out at 0% interest doesn’t mean your work is done. Remember credit card interest rates can range from 13% to as high as 25%+, making it one of the most punishing forms of debt. So as soon as this introductory period is over, you’ll be on the hook for a brutal interest rate, unless you can pay off your credit card quickly, or find a new balance transfer card until you can pay it off.
Points and Cash Back, on the other hand, is where the credit card companies offer you a certain amount of bonus points after you hit a certain spending threshold.
Take the Capital One Savor for example, with its current offer of $500 cash back after spending $3,000 in 3 months. That offer is beyond the other perks of the card including 4% cash back for dining and 4% for entertainment. $3,000 is a hefty sum, so before you’re enticed by these offers make sure you’ve budget for upcoming expenses so that you’re not spending just to reach that bonus (which would nullify any bonus you receive).
I repeat, do NOT go into unnecessary credit card debt simply for a credit card bonus. But if you’ll be spending that money anyway then you may as well try to get rewarded for it.
So, What Makes These Credit Card Sign Up Bonuses Good?
Let’s take a standard 2% credit card with no sign-up bonus, like the Citi Double Cash Credit Card, and the compare it to the Savor Card by Capital One with the sign-up bonus.
Example Credit Card Rewards And Sign Up Bonuses For Someone Who Spending $1,000 Monthly On Their Credit Card
| Citi Double Cash (2% Cash Back) | Capital One Savor ** (4% on Dining/Entertainment, 2% Groceries, 1% Everything Else) | |
| Monthly Spend | $1,000 | $1,000 |
| Annual Spend | $12,000 | $12,000 |
| Total Annual Cash Back | $240 (2%) | $59 + $13 + $99 = $171 (1.43%) ** |
| Sign-Up Bonus | — | $500 |
| Rewards Difference (Yr. 1) | — | + $431 |
| Amount Of Spend Required To Break Even | $21,550 | — |
** Used BLS Statistics to for Savor Bonus Categories:
Average US Household Spent ($4,015/55,978, 7.2%, on Food at Home, $3,008/55,978, 5.4%, on Food away from Home, $2,842/55,978, 5.1%, on Entertainment)
In order for you to make the same amount of cash back with the Citi Double Cash Card as you would with the Savor Credit Card, you’d have to spend over $20,000 on your 2% card.
Realistically though, the differences become quickly much less over time especially because the Savor has an annual fee of $95 (waived in the first year), although after year one you can convert it to one of Capital One’s no fee offerings such as the Quicksilver.
Bottom line – Once your money situation is under control, you can take a second look at the what the credit card companies are offering.
Bonus Example: Credit Card Rewards And Sign Up Bonuses For Someone Who Spending $250 Monthly On Their Credit Card
| Citi Double Cash (2% Cash Back) | Chase Freedom Unlimited (1.5% Cash Back – $150 CB Bonus after $500) | |
| Monthly Spend | $250 | $250 |
| Annual Spend | $3,000 | $3,000 |
| Total Annual Cash Back | $60 | $45 |
| Sign-Up Bonus | — | $150 |
| Rewards Difference (Yr. 1) | — | + $135 |
| Amount Of Spend Required To Break Even | $6,750 | — |
In order for you to make the same amount of cash back with the Citi Double Cash Card as you would with the Savor Credit Card, you’d have to spend over $20,000 on your 2% card.
Sick Of Receiving Letters In The Mail With Credit Card Sign Up Offers?
If you prefer not to have these in your mailbox, it’s actually easy to get them to stop.
The Fair Credit Reporting Act (FCRA) compelled the credit reporting agencies (Experian, Equifax, and Transunion) to create a centralized service for consumers to have the ability to “Opt-Out,” preventing Consumer Credit Reporting Companies from providing your credit file information for firm offers of credit or insurance that are not initiated by you.
All you have to do is go here!
The Right Credit Card Sign Up Bonus Can Help You – But No Sign Up Bonus Is Worth Racking Up Debt You Didn’t Budget For
From both of these examples, it’s clear that you can win big by finding the right sign-up offer.
You just have to remember that you should only be signing up for new lines of credit if you can use them responsibly.
About the author: Ernie Rosales is a student at the Wharton School of Business at the University of Pennsylvania.
