Opinion: Opportunity Cost & Why It's Not Always Black and White

Ever since I was introduced to the world of credit cards and the amazing perks and benefits that premium credit cards offer, I was instantly hooked. I used Chase Ultimate Rewards (UR) points to stay at luxurious Hyatt properties like Park Hyatt New York and took almost free round-trip flights to Tokyo, Japan. Being upgraded at hotels and driving luxury cars at no additional expense have become norms for my travel itineraries. However, when I first dove into this lifestyle, no one really taught me how things worked, and I didn’t take the best route to optimize my earnings and redemptions. Today, I would like to talk about opportunity cost and its impact on your credit card journey.

Traveling can become stress-free and “almost” expense-free depending on the credit cards you have in your arsenal.

Per Google, opportunity cost simply means “the loss of other alternatives when one alternative is chosen”. This is a common term that can be applied to many business sectors, especially in finance or investment-related fields. For instance, let’s say you prefer using cash over credit cards. If you can qualify for a no-annual-fee credit card like the Chase Freedom Flex card, you can earn a certain percentage of cashback by using it. As of Q4 in 2021, the Chase Freedom Flex card earns 5% back on Paypal transactions or at Walmart. If you are getting a $200 Christmas gift for your friend, with the Chase Freedom Flex card, you can earn 5% back, which is equal to $10 or 1,000 UR points - the opportunity cost in this example.

If you’d like to apply for the Chase Freedom Flex Card, please consider using my referral link. It will continue to help fund my blog operations and help visitors make informed decisions to maximize their rewards. Thank you! https://www.referyourchasecard.com/18g/R4UL0D9WDR

If you are using cash, make a change and use credit cards - just look at what you are missing out! Photo credit: www.chase.com

Let’s discuss opportunity costs when accounting for sign-up bonuses and credit card eligibility. All major credit card issuers have their own quirky, sometimes stringent, rules. We all know of Chase’s infamous 5/24 rule; Chase will approve you for up to five credit cards in 24 months (details explained here). Bank of America (BoA) has the 2/3/4 rule; you can only be approved for two new BoA credit cards in 30 days, three new BoA credit cards in 12 months, and four new BoA credit cards in 24 months. American Express (AMEX) has a strict rule on sign-up bonuses, only allowing cardmembers to qualify for one sign-up bonus per product once in a lifetime. Capital One likes to approve people who have lower credit scores, and for Citi, you can only apply for one card every eight days and will only approve you up to two cards in 65 days.

The only way to get passed the Chase’s 5/24 rule is through time and patience.

These are general rules, and there are both specific and vague terms and conditions per issuers, but what is the opportunity cost if you prioritize obtaining AMEX credit cards over Chase? Of course, scenarios will vary depending on which sign-up bonuses you qualified for. For example, if you got five AMEX credit cards in a year, now you cannot open Chase credit cards until you are clear of the Chase 5/24 rule. As of September 26, 2021, Chase is offering 100,000 UR points for new Chase Sapphire Preferred cardmembers, and you will automatically be rejected because you'd violate the 5/24 rule. Therefore, AMEX credit cards could've waited for a bit to maximize your earnings and minimizing opportunity costs. However, this is very subjective, and you need to analyze your lifestyle and financial health to accurately reflect your own opportunity cost.

If you are not strategic, you may lose out on amazing sign-up bonuses.

Let me use myself as an example. I didn’t know about these rules when I started opening up credit cards and opened mostly AMEX credit cards. AMEX sign-up bonuses can be extremely lucrative and attractive, and I got the AMEX Hilton Aspire card when it first launched. At that time, the Chase Sapphire Reserve card had a sign-up bonus of 50,000 UR points, and the AMEX Hilton Aspire card had a sign-up bonus of 150,000 Hilton Honors points. Since I value UR points at 2 cents per point and Hilton Honors points at 0.5 cents per point, my personal cash valuations of those sign-up bonuses are $1,000 and $750, respectively.

Weighing sign-up bonuses and earning rates is important, but it shouldn’t be the only indicator to analyze the true opportunity cost.

For most people, going for the Chase Sapphire Reserve card would be a better choice (and I am not getting into the nitty-gritty of perks and benefits of each card here). However, getting the AMEX Hilton Aspire card was a great decision for me at that time because I spent more than 100 days at Hilton properties for my consulting position. The AMEX Hilton Aspire card makes you an immediate Hilton Honors Diamond member, and you’ll get a 100% points bonus and 10 extra points per dollar spent at Hilton properties. Therefore, the Aspire card earns a total of 24X per dollar spent on Hilton properties when booked directly with Hilton, yielding a grand return of 14.4%. With Hilton’s frequent points promotions, I raked in a serious amount of Hilton Honors in such a short period of time. I understand my experience will not reflect most people's cases when evaluating opportunity costs. The lesson here is that earning and redemption rates shouldn't be the only indicators when deciding which credit card to get to minimize the optimal opportunity cost.

I stayed at the Arizona Biltmore, A Waldorf Astoria Resort, for free using my Hilton Honors points.

Choosing a credit card can be a daunting process; keeping up with specific credit issuer rules and evaluating sign-up bonuses and earning rates can stress you further. That's why PointsMiler exists. I can evaluate your financial health as well as your credit history to minimize the opportunity cost and ensure you are taking optimal routes on your credit card journey.

If you’d like to apply for the American Express Hilton Aspire Card, please consider using my referral link. It will continue to help fund my blog operations and help visitors make informed decisions to maximize their rewards. Thank you! http://refer.amex.us/EDWARSr3Jf?xl=cp01