Suddenly an Adult is my series of what I learned from my experience of shifting from a live with parents gamer in Canada to an independent highly functional adult in Japan in just a few months. Credit cards used to be something like an afterthought for me. Nice to have. Should get eventually. Powerful. My experience with them started off with my parents causing me some trouble getting started with credit, to eventually getting one good card, and then after moving to Japan, truly understanding how to use credit cards. In this post I’ll explain how to level up your credit card game.

Stage 0: Get your first credit card ASAP

The first thing you want to do is get a credit card in your name ASAP, and start using it for everything. Generally, you can do this once you become 18 years old. My parents discouraged me from getting a credit card until right before I graduated university, and this made it extremely difficult for me to get credit cards quickly when I started my first full time job.

Having a credit card open in your name is important to start building credit history. That way, once you have stable income, you can apply for the higher tier credit cards. You will also learn the financial responsibility associated with having a credit card. Don’t go on a shopping spree for things you can’t really afford. Pay your credit card balances in full, on time, every time.

Stage 1: One Card for Everything! Cashback or Points?

You now have stable income. Your credit score is looking okay. It’s time to get one card to use as the main one for everything! You can now choose between cashback and point cards.

The rule of thumb of when to use cashback or point cards is actually very simple.

If you like to travel, NEVER use cashback as your main card

Say you have a card that gives you 1% cashback on everything. You can think of this as a card that gives you 1 point per dollar, and that point has a fixed value of 1 cent.

Now let’s compare it to an airline card that earns miles. Say you have a card that gives you 1 mile per dollar on everything. So once again, you have 1 point per dollar. The difference is that the monetary value of that point varies depending on what you redeem it for.

If you redeem a mile for a gift card, you might get an exchange rate of 1 mile = 1 cent. In this case, it is similar to a cashback card, but you are also limited to wherever you can use that gift card. However, the best redemption of miles is on premium flights.

For example, say you wanted to fly round trip somewhere in first class. You can redeem this for 100,000 miles, and if you were to buy the ticket outright, it would be $10,000. These tickets have equal monetary value, so if you were to buy the ticket with your miles, you’d get a value of $10,000 / 100,000 miles = $0.1 / 1 mile, which means each mile is worth 10 cents. In the case of 1 mile per dollar spent, it is equivalent to 10% cashback.

These are theoretical values, but points are generally worth at least 5 cents per point when redeemed for a premium flight. Thus, as long as you enjoy traveling, points are significantly more valuable than cashback.

Stage 2: Annual fee? No thank you.

Now that you’ve decided between cashback and points, you are now looking for cards in your rewards of choice. You see cards with annual fee and think, nope. However, the annual fee on the cards may be worth it. Deciding if it’s worth it depends on the monetary value you place on the perks.

Case 1: Annual fee card has higher reward rate

This is the simplest case for showing when an annual fee is worth it. Say we’re comparing 2 cashback cards:

1. Annual fee: $0, 1% cashback on all purchases
2. Annual fee: $100, 2% cashback on all purchases

With card 2, you are essentially paying $100 a year for an extra 1% cashback. This fee becomes worth it when that extra 1% cashback offsets the fee you pay. In this case, that value would be $10,000. So, if you spend more than $10,000 a year using your credit card, you are better off getting card 2.

Case 2: Annual fee card has many perks

This is a more typical case of annual fee cards. Annual fee cards tend to have extra insurance and perks attached to them. Whether it is worth it or not depends on how much monetary value you put on that insurance and perks.

Insurance can be sufficient to the point where you no longer need to purchase travel insurance when going abroad, or no longer need to purchase extended warranty for products you buy. It is difficult to put a monetary value on insurance, but the peace of mind is definitely valuable.

As for perks, some of them have direct monetary value. For example, if a card with an annual fee of $300 gives you $100 worth of travel credit every year, as long as you use that travel credit every year, it offsets the $300 fee by $100.

Another kind of perk is elite membership to programs, such as airlines, hotels and lounges. The value of this depends on the cardholder and varies with how much those airlines/hotels/lounges are used. The value of these perks are something that you would have to figure out yourself.

Stage 3: I got one good card! I’m set for all my future expenses!

Many people, including myself while I lived in Canada, are often satisfied at this point. However, once you start combining credit cards, you truly start to get more value out of your cards.

Bonus Categories

The key to combining credit cards lies in each cards' bonus categories. Often, cards will have bonus cashback or points on types of purchases. For example, say your card has 5x bonus on groceries, 3x bonus on gas, 1x everything else.

You might be satisfied with this, but you can get even more value out of your card bonuses by getting another card that has bonus categories that compensate for the gaps on your first card. For example, while there is a 3x bonus on gas, you could get a second card with a 5x bonus on gas. That second card also has a 4x bonus on restaurants, which the first card doesn’t have any bonus for! This is an example of a strong card combination, where you would use your first card to pay for groceries, and your second card for gas and restaurants.

Card Brand

Visa, Mastercard, Amex, Diners, JCB, Discover - there are many card brands and not every retailer accepts all of them. As a result, you should pick cards that are different brands, so you have a backup card that can be used if your primary card brand is not accepted.

Visa and Mastercard are the safest and most likely to be accepted everywhere. The others depend on where you live, but they also may offer significantly more benefits and perks.

Card combinations

Typical card combos usually fall into one of two archetypes:

1. Strong Amex and no annual fee backup

Amex cards tend to have the most benefits. Amex points, known as Membership Rewards, are also one of the most powerful and flexible points you can get. Thus, you want to use your Amex as your primary card. However, not every merchant accepts Amex, so you will need a backup card, which should be a Visa or Mastercard. It is a backup card, so you should get one with rewards that synergize with your Amex points, while also being no annual fee.

2. Cards with non-overlapping bonus categories

Have multiple cards with different bonus categories and use the card with the highest bonus for the type of purchase. Also, it is ideal for all of your cards to have a rewards system that synergizes with each other. For example, if you’re collecting some kind of mileage, make sure all the points you collect can be converted to the same mileage program.

Stage 4: Welcome bonuses! New credit card just before big purchases!

You notice that credit cards often have lucrative welcome bonuses that offer a large amount of points upon spending some amount of money within an amount of time, or extra cashback up to some amount. You have a big purchase planned soon, and start considering getting a new credit card with this spending requirement for the bonus, so you can get that bonus by using your new credit card. You get the card, make your purchase, and get the bonus. After getting your bonus, you go back to using your primary and secondary credit cards, and decide you want to cancel this card that you used for the bonus before you get charged the card’s annual fee. Congratulations, you discovered the magic of churning.

Churning is the process of maximizing points through welcome bonuses, with a typical credit card’s churn cycle being what I described above. That churn cycle is also known as “churning and burning”.

Stage 5: Utilize welcome bonuses at all times

You realize that welcome bonuses are the best way to get points. Thus, you start rotating the cards you use and make sure you are trying to meet some minimum spend requirement for a welcome bonus at all times. After getting your welcome bonus, you cancel the card before the annual fee, and repeat the process with the same card a few months or a year later. You start keeping track of all your cards in a spreadsheet.

This is the process of being a serious churner. Serious churning requires a huge time and money investment. You need to understand the state of all your cards, ongoing campaigns, and when it is safe to cancel a card. You need to know when to apply for cards so you can meet the minimum spend requirement within the time limit, and have backup methods to meet the minimum spend requirement. You need to keep track of all your cards and make sure you pay them all in full everytime. If you miss even one payment, it’s over.

Serious churning is not for everyone. You might see some blogs and posts about how serious churners reap their benefits. But in order to do so, it requires a huge investment and good micromanagement. If you think you can handle it, you should definitely try to level up to this stage, but don’t feel obligated to get this far.

Summary

Credit cards are powerful purchasing tools that require a lot of financial responsibility to use. There are 5 main stages of credit card usage:

1. 1 card for everything
2. Accepting cards with annual fees
3. Card combination of 2 or more cards
4. Casual churning
5. Serious churning

While many people are satisfied with remaining in stage 1 or 2, you can truly maximize the value you get from your credit cards by leveling up to stage 3 or 4. Stage 4 is the sweet spot and should be the goal of most people. Churning can be a dangerous game if you cannot manage multiple credit cards well, but even if you casually churn by only issuing cards for planned big expenses, you can reap some major benefits.

Serious churning is the point where you can get the most value out of your money, but not everyone can attain this state. It is dangerous if you are not keeping up with all your cards and ongoing campaigns. You might be pressured to applying for cards for the bonus and force yourself to spend money you don’t really want to in order to get the bonus. You might not have the organization skills necessary to keep track of every card. If you can keep track of all your cards and are responsible with spending to meet spending requirements, you should try to level up to this stage.

For everyone else, stage 4 is the goal. You’ll be able to get some lucrative rewards with just the right amount of financial responsibility, without taking away too much from your investing. Find your primary card combination and keep it. Before planned big purchases, churn and burn. But never forget the most important rule: pay your credit card balances in full, on time, every time.