Credit card use (or abuse) is one of the most contentious topics in the FIRE community. Some people – usually in the “I will skimp and save my way to FIRE” category – swear you should avoid them. Others might be more ambivalent.
Fundamentally, there is nothing wrong with avoiding credit cards – as a matter of fact, it may be advantageous if you are the kind of person who finds it hard to control your spending. Still, if you are in control of your spending habits, avoiding credit cards is a waste because there are some easy rewards that can help you save considerable amounts of money year in, year out.
Below is the credit card strategy I use to save approximately £4,000 per year. But first, some key principles to go by.
The Two Principles To Govern Your Credit Card Use
- Simplicity. Life is busy. Don’t make it any busier than it has to be. You should have three credit cards at most – one for day to day spend, a second one as backup in case your primary card doesn’t work for whatever reason and a third one for traveling.
- Discipline. As ever, make sure your credit cards are paid off in FULL every single month. If you happen sign up for a card with an initial grace period on annual fee, make sure you have a reminder set in your Google Calendar to cancel this card at least two months ahead of time.
Keeping the above in mind, here are the three credit cards I use at the moment.
British Airways American Express. This is my go-to daily card for the very simple reason that it allows you to collect Membership Rewards for every pound you spend and gets you a 2-4-1 voucher if you spend a certain amount of money (see below for details). You can subsequently convert these Membership Rewards into British Airways Avios and use them to pay for tickets or upgrade to business or first class. I have done both on multiple occasions.
There are two variations of the BA Amex:
- BA Premium American Express (aka black). This one has an annual fee of £195 and gives you 1.5 Membership Rewards / Avios per £1 spent. You get 25,000 bonus Avios when you spend £3,000 in your first three months. Most crucially, it gives you a 2-4-1 companion voucher once you’ve spent £10,000. This means that if you book a BA ticket with Avios, it will give you a second ticket in the same class for FREE. So if you book a return business class ticket to Las Vegas with Avios, you can use this voucher to get a second business class ticket on the same flight. Critically, this voucher is valid for two years. This is important because on the best routes (i.e. long-haul, business or first class tickets) you need to book your flights exactly a year in advance.
- BA American Express (aka regular or blue). No annual fee on this card, which is always nice. You get 1 Membership Reward per £1 spent. You get 5,000 bonus Avios when you spend £1,000 in your first month. You can also get a 2-4-1 voucher if you spend £20,000. Unfortunately, because this voucher is only valid for a year, it is unlikely you will be able to redeem it on the best routes (see above) and therefore its value is much lower. This is the card I use at the moment – for personal reasons my wife and I cannot plan our travel out more than a few months so we can’t really use the voucher. Getting the Avios on our daily spend is still nice!
For our most recent holiday, I have booked myself a business class return ticket to San Francisco and used the companion voucher to get the same ticket for my wife. The retail price for this ticket was £3,563 so in essence, I saved £3,458 once you factor in the annual fee.
Important note: To make full use of the voucher you need to generate sufficient Avios through travel to be able to buy the first ticket with Avios. This is unlikely to be a problem for those who travel on business a few times a year. You also need to have been planning to spend the money on that trip in the first place. If we didn’t plan to holiday in SF – and to fly business class then the ~£3,500 hardly qualifies as savings!
Best Credit Card for Traveling
Halifax Clarity Credit Card. This one is a MUST HAVE when you travel for business or pleasure for two simple reasons. Number one, it does not charge a fee for non-sterling transactions. These fees can be as high as 3% – make that £30 on every £1,000 you spend abroad. Number two, you get the Mastercard FX rate on all of your foreign purchases. Mastercard rates consistently beat those set by Visa and Amex – typically by 0.5%. Altogether, using this card (or a similar one) can save you 3.5% on all non-sterling spend versus other cards.
Our family’s annual non-sterling credit card spend typically runs at c.£10,000. Hotels, amenities, restaurants and supermarkets add up quickly on those ski and beach holidays. I estimate using the Halifax Credit card saves us about £350 per year.
Honourable mention: American Express Preferred Rewards Gold. I typically wouldn’t bother with a third card but it has a grace period of 1 year on the annual fee and allows you to get 10,000 Membership Avios when you spend £3,000 in your first three months. A good way to get your Avios balance up quickly if you are missing a few for that dream first class flight to Sydney!
Bringing It All Together
There are plenty of resources out there that can teach you to squeeze every last drop of juice from your credit card spend. Ironically, the people who are best placed to take advantage of credit card rewards are those who have already reached a form of FIRE. They tend to have more flexible schedules and more free time to plan their credit card spend and travel. For the rest of us, adopting a simple strategy that saves you a couple of grand a year with minimal hassle is likely the best way to go!
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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4 thoughts on “How To Use Credit Cards To Build Wealth”
I’ve just come round to this idea having thought credit cards are the devils work (only used them for monthly spending as you do to collect avios. Just doing some house work and have put 14k of the cost on a 0% credit card. I get 2 and a half years to pay this off. I have over 100k in investments so why would I sell them. Much better to cashflow the debt over the next few months. Even better paid originally on Amex and transfered the balance so avios!
Nice one. Which card did you use for the 0% balance transfer?
I just cashed in another BA companion voucher for a transatlantic flight to North America, took a bit of time to find the right opportunity but savings of £600+ were well worth the effort.
Thanks for this simple but very helpful advice, BoF. I just took some actions from the above:
1) Applied for the Amex rewards credit card for points on daily / regular spending;
2) Have a travel card: Barclays Rewards which is very similar to your Halifax one (I just converted an existing Barclaycard I have for that one). I actually have 2 more back-up cards, but probably keep them there due to some legacy…:).
I have been always paying in full, but now I feel things are in much better place now given there is a purpose for each card. Thank you!
Cheers, glad you found it helpful! Sadly tough to make use of BA miles in this environment but I am confident it will change.