What is the Earned Income Tax Credit (EITC)?

If you’ve ever filled taxes, at some point, you’ve probably heard of the earned income tax credit. Since this is a way to reduce your tax liability each year, many people wonder if they can claim the EITC on their next tax return.

But what is the Earned Income Tax Credit and how does the EITC work? More importantly, do you qualify for the EITC?

Thankfully, we’re here to help clear up all of your questions about the EITC. Coming up, we’ll walk you through the basics of what the EITC is and how you can file it on your next tax return. Let’s get started!

What is the Earned Income Tax Credit (EITC)?

According to the IRS, the EITC is “a benefit for working people with low to moderate income.” As a credit, the EITC is basically a dollar-for-dollar reduction of the overall amount of tax you owe.

For example, if you had an overall tax liability of $5000 and you claimed $1000 in credits, you would only owe $4000 in taxes. That’s pretty awesome.

On the other hand, deductions reduce your overall taxable income, or your AGI (adjusted gross income). So if you made $50,000 and had a deduction for $1000, your new taxable income (that’s used to figure the amount of taxes you owe) is now $49,000.

Thus, credits usually provide much more of a tax relief than a deduction does, which is why they’re so heavily sought after by hardworking people, such as yourself.

In fact, the Earned Income Tax Credit is a refundable tax credit, which means that if the EITC reduces your overall tax liability below zero, the IRS will pay you the difference, meaning you get money in your pocket come tax time. What’s not to like?

Who qualifies for the Earned Income Tax Credit?

Since everyone wants a tax credit (they’re just so awesome), there are some pretty strict rules in place to govern who can claim the earned income tax credit and how much they can use.

According to the IRS, to qualify for the earned income tax credit, you:

Must have earned income from working for someone or from running or owning a business or farm and meet basic rules. And, you must either meet additional rules for workers without a qualifying child or have a child that meets all the qualifying child rules for you.

IRS, 2019

It turns out that there are more rules written about who isn’t eligible for the earned income tax credit than about those who are. Here are some things to note if you’re wondering if you’re eligible for the EITC:

  • Social Security Number. Both you and your spouse, if married, and your qualifying children must have a social security number to claim the EITC.
  • Married Filing Separately. Anyone filing “married filing separately” is NOT allowed to claim the earned income tax credit. It’s really unclear as to why this is, perhaps to stop two individuals filing separately from both claiming the EITC for the same children, but this isn’t explicitly stated.
  • Investment Income. All of your investment income must be less than $3,600 for the year to meet the income requirements for the EITC and you must have at least $1 in earned income, which can’t come from pensions or unemployment.
  • Incarceration. You can’t count any income you received while working as an inmate to claim the EITC. Ineligible work includes any services you performed, regardless of their legality, while incarcerated, in a work release program, or in a halfway house.
  • Foreign Income. You can’t claim the earned income tax credit if you file Form 2555, which is for Foreign Earned Income or Form 2555-EX, the Foreign Earned Income Exclusion
  • Military and People with Disabilities. There are special rules for the EITC for military members, the clergy, and people with disabilities.

What are the income limits for the Earned Income Tax Credit?

It turns out that the income limits for the earned income tax credit are all based on how you file and how many children you claim. The IRS provides us with this table for 2019:

As you can see from the table, while a single individual with no children can claim the credit if they make less than $15,270, two married people filing jointly with three or more children can have a maximum income of $54,884. Thus, the more children you have the higher the income limit for claiming the earned income tax limit.

Keep in mind, however, that the incomes listed in this table are your Adjusted Gross Income, or AGI. So, you need to figure in all of your other deductions and expenses first before you calculate your AGI.

How much is the earned income tax credit?

Similar to the income limits for claiming the earned income tax credit, there is no one single maximum credit amount for the EITC. Instead, the IRS tells us that the maximum credit for the 2019 tax year is:

  • $6,557 with three or more qualifying children
  • $5,828 with two qualifying children
  • $2,526 with one qualifying child
  • $529 with no qualifying children

If you’re unsure of whether you have a qualifying child, you can check out the IRS’ rules here.

How much can I claim for the EITC?

The earned income tax credit is purposefully designed only to really benefit working families, which is why people with more children get a much larger tax break than people with no children (upward of $6,000 more in credits – that’s a lot).

That being said, your actual EITC for the tax year is pretty tricky to calculate as your credit is equal to a percentage of your total AGI, up to the point of your maximum credit. However, the credit rate varies by your family size with a larger credit rate awarded to families with more children.

The easiest way to figure out your EITC is to check out the IRS’s EITC Assistant, which will help you determine if you qualify for the credit and for what amount.

What happens if I make a mistake with my EITC?

As you can imagine, the IRS doesn’t take kindly to people who claim more of a tax credit than they’re eligible for. In fact, if you make an error when claiming your EITC, there are some serious consequences.

If you make a mistake with your EITC, the following can happen:

  • The EITC part of your refund can be delayed until the error is corrected. This can take a few months.
  • Your EITC can be fully or partially denied.
  • You may have to pay back the amount of EITC claimed in error, plus interest.
  • You may need to file Form 8862, Information to Claim Refundable Credits After Disallowance, to claim the EITC again.
  • If you intentionally or recklessly claimed the EITC with disregard for the rules, you could be banned from claiming it for the next two years.
  • If you claimed the EITC fraudulently, you can be banned from claiming it for the next ten years.

What is the Self Employment Tax?

Whether you’re new to freelancing or you’ve had a sole proprietorship for years, when you own your own business, you take on a whole new assortment of responsibilities when it comes to tax time. One of the most common questions we get from new freelancers is: What is the self employment tax?

The self employment tax (SE tax) is the fee that you pay to the federal government to cover the cost of social security and medicare when you’re self employed.

For many people, the self employment tax comes as a surprise, as it’s not something you’re used to paying when you work for someone else. Unfortunately, there’s also a lot of misinformation out there about taxes for freelancers, which is why we’re here to help clear the air.

Coming up, we’ve got your ultimate guide to the self employment tax, including information on what it is, how much you need to pay, and when you need to pay your self employment tax on your earnings. Let’s get to it!

What is the self employment tax?

As we’ve already discussed, the self employment tax is the amount that an individual pays to the federal government to cover their share of social security and medicare when they receive wages from self employment work. While this may seem like a “special tax” for freelancers, it turns out that employees pay it, too – it just happens to be withheld from their paychecks each month.

If you’ve ever received a pay stub from an employer, you’ll notice that there’s a deduction set aside for “FICA” taxes (Federal Insurance Contributions Act). These are the fees you pay toward social security (your federally sponsored retirement and disability insurance) and medicare (health insurance for older folks).

When you’re employed by a company, 6.2% of your paycheck is withheld for social security benefits while an additional 1.45% is withheld for medicare (as of 2019). As an employee, your federal income tax is also withheld from your paycheck, according to the withholding rates you calculate on your W-4. This happens automatically, with no extra leg work on your part when you work for someone else.

When you don’t receive regular paychecks from an employer where taxes are automatically withheld, however, you need to pay your own taxes directly to the IRS. This is where the self employment tax comes in the picture.

How much is the self employment tax?

The self employment tax rate, as with all tax rates, changes frequently. In 2019, the self employment tax rate is 15.3%. Does this sound like a lot? That’s because it is.

In fact, if you do the math, the self employment tax (the sole proprietor’s version of FICA) is exactly twice the amount that an employee pays for the same services. How does that compute?

Well, it turns out that when you’re employed, your employer has to pay half of your FICA taxes. This means that the actual FICA tax for individual employees is 15.3%, but your employer pays half of what you owe for you. You would never know this based on your pay stubs, which is why the self employment tax is such a surprise to new freelancers.

Who needs to pay the self employment tax?

At this point, you’re probably asking yourself: Do I need to pay the self employment tax? Here’s the IRS’s answer:

You must pay self-employment tax and file Schedule SE (Form 1040) if either of the following applies.
1. Your net earnings from self-employment (excluding church employee income) were $400 or more.
2. You had church employee income of $108.28 or more.

IRS.gov (2019)

Basically, if you’re not a church employee and you made more than $400 in self employment or freelancing income this year, you’re liable for self employment taxes. So, if you sold $399 worth of earrings on your Etsy shop, you’re off the hook. Otherwise, you need to pay up.

That being said, there are special rules for certain freelancers, especially people who work as family caregivers. You can learn more about those special rules here.

Do freelancers pay more in taxes than employees?

Now that you know how much more you need to pay in self employment tax as a freelancer, you might be wondering if freelancers pay more in taxes than regular employees. The unfortunate truth is that, yes, freelancers almost always pay more in taxes than employees.

Since freelancers need to pay both the additional self employment tax and their regular income tax based on their income level, they do, on average, end up paying more in tax than regular employees. Generally, most accountants recommend that freelancers plan to put aside upward of 40% of their income (even more if you’re a high earner or if you live somewhere with high state taxes) toward taxes each year.

When you compare this to a regular W-2 employee, this is quite a bit more. The main difference between a W-2 employee and self employed individual, however, is that the freelancer needs to pay that extra 7.65% toward the self employment tax that the W-2 employee gets paid for them.

What is the self employment tax deduction?

While it is true that freelancers pay more, on average, than a W-2 employee in taxes each year, there are quite a few tax breaks that freelancers can take advantage of, if they’re in the know.

Perhaps the most important tax deduction for freelancers, at least when it comes to the self employment tax, is the aptly named “Self employment tax deduction.”

What is this mysterious deduction, you might ask? Basically, it’s a way to deduct the amount of extra money you’ve had to pay in self employment taxes (when compared to a W-2 employee) from your overall income.

Basically, you can deduct half of what you paid in self employment tax for the year from your total adjusted gross income on your Form 1040. This means that if you made $100,000 this year from all of your income sources and paid $5,000 in self employment tax, you can adjust your total income to be $97,500 thanks to your new $2,500 deduction.

Since this is a deduction and not a credit, this tax break doesn’t directly decrease the amount you owe. Rather, it reduces your taxable income that’s used to figure the overall amount of federal income tax you need to pay.

Think of it as a small break for paying more than other folks, not a complete reparation for the extra money out of your wallet just for being entrepreneurial.

How do I pay the self-employment tax?

Unfortunately, many people begin their self employment career totally unaware of the self employment tax. As you can imagine, this comes as quite a shock to many new freelancers come tax time.

In fact, If you don’t pay your taxes during the year and you owe more than $1000 come tax time, you actually might get another fee slapped on top of the amount you owe. Ouch.

The solution? Don’t let this be you. Pay your self employment tax throughout the year as a part of your quarterly estimated taxes (more on this in another article).

How do you pay your self employment taxes? It’s actually quite easy, though there are a number of different ways to do it.

By far, the easiest way to pay your self employment and quarterly estimated taxes is through the government’s Electronic Federal Tax Payment System (EFTPS). This is a completely free service provided by the US Department of Treasury and it’s pretty simple to use.

To pay your taxes through the EFTPS, you’ll need to make an account. While making the account itself doesn’t take much time, you’ll need to receive a PIN in the mail, which takes a while. So, plan ahead and do this well ahead of the tax deadline for your quarterly schedule.

You can even connect your EFTPS account to your Quickbooks Self Employed account for any easy way to pay your estimated taxes. Since Quickbooks Self Employed estimates your tax payments for you, this is a super convenient, streamlined system for paying the feds on-time each quarter.

Another method for paying your self employment tax is to use the IRS Direct Pay system. Direct Pay allows you to pay your estimated taxes straight from your bank account.

Alternatively, you can use the IRS2Go Mobile App to pay your estimated taxes, check your tax refund status, or find free tax preparation assistance. This app works well on both Apple and Android devices, so it’s pretty handy. You will need to verify your identity before using it, though, so have your last two tax returns handy to get started.

Self Employment 101: 5 Business Essentials

Start your business off right with our top 5 tips for new freelancers!

Congrats! You’ve finally shed the confines of traditional 9-5 corporate living and have decided to embark on your own occupational journey as a freelancer. Being a freelancer opens up a whole new world of opportunity for you, both personally and professionally, as it allows you to control your hours, set your schedule, and do the work you love to do.

But, as a new freelancer, it can be tricky to navigate the world of owning a business, working through the murky tax code, and getting ourself organized. That’s where we come in.

Whether you’re new to the world of self employment or you’ve been living large in the gig economy for some time, we’ve got our top ten five to make the most out of your freelance business right here:

1. Brand Yourself

Now that you’re on your own, you need to market yourself and your skills. Why should a potential client hire you over the hundreds, if not thousands, of other freelancers in your industry?

As a freelancer, you are your own company, so how are you going to make yourself shine? Self employed business owners are solely responsible for turning themselves into a trustworthy brand, so it’s time to get your name out there.

First things first, you need to figure out precise what you offer to clients that they can’t get anywhere else. Then, you need to determine how you’re going to express this to the world. What’s your tagline? What makes you amazing?

2. Start a Digital Presence

These days, you’d be hard-pressed to run a profitable new business without some sort of online presence. Whether it’s a formal website or a collection of social media profiles, you need to find a way to get the word out about what you can do.

If you’re not technologically savvy, this news might make you feel a bit queasy. The good news? You don’t need to be a prolific coder to get out and create a stunning website that attracts prospective clients.

Thanks to the plethora of different website building platforms and tools out there, it’s totally possible to create a beautiful online presence with minimal effort or background knowledge.

Still not certain about your ability to create a quality website? There are plenty of people out there that can help. Hire a fellow freelancer or a website development firm to make your online presence positively pop off the screen.

3. Be Your Own Accountant

Small business owners (yes, that’s you!) need to track their own revenues and expenses, so you’ll need a system in place to make that happen. While some people try to put off this “formal accounting” for as long as possible when starting out in the freelance game, there’s nothing worse than creating your own financial mess that you’ll then have to sort out come tax time.

Our advice? Get started on your own accounting, right away. Whether you’re bringing in $10 a week or $1000 a day, everyone needs to be on top of their finances.

The good news is that you don’t necessarily need to go out and hire a professional accountant to keep track of your cash flow. While this is certainly an option (and perhaps the best choice for some folks), many freelancers can and do manage their own finances with the help of accounting software like Quickbooks Self Employed.

Check out our top software choices for freelancers here!

4. Organize Your Portfolio

Unless you’re already a bigwig in your industry, no one in their right mind will hire you just because you say you’re an expert. You need to prove it.

The best way to strut your stuff in the freelance world is to create a portfolio that displays all of your finest work in one place. Of course, this is easier for those of us who operate in fields such as photography, design, and writing, but it’s certainly possible for folks in other industries.

Often, your website is the best place to display your portfolio, though you may find that you want to create a number of smaller portfolios to encourage people to learn more about you. Facebook, Instagram, and other platforms are a great way to create “mini portfolios” that link back to your website and contact information.

5. Get Clients

As a new freelancer, clients won’t just come to you. Almost always, freelancers start our their self employed life by applying to a seemingly endless series of jobs, hoping that, one day, someone will bite.

While this might sound mildly demoralizing, it’s just how things work in the current gig economy. The secret to success? Learn how to distinguish yourself from the rest and never stop trying. After that 100th application with no callbacks, it may seem like all hope is lost, but you have to persevere.

Depending on your industry and specialization, you might have luck with certain platforms, such as Upwork, that cater specifically to clients looking for freelancers to work long-term and short-term gigs. Others might find that networking through LinkedIn or word of mouth is more prosperous in the end.

Essential Software for Freelancers: Our top 5 picks

Use technology to power your work

As a freelancer, you’re on your own to organize your financial life and optimize your business. Unless you already have an MBA, past experience running a Fortune 500 company, and nearly unlimited financial resources at your disposal, at some point, you’ll need to find ways to do all of the jobs that HR and accounting departments do for you at a regular workplace.

Thankfully, there’s an abundance of technology at your disposal to help you get the most out of your freelance business. Whether you need a simple way to do your accounting, a surefire web host to publish your website, or help doing your annual taxes, there’s software out there for you. Here are our top picks:

1. Accounting Software: Quickbooks

We talk about Quickbooks so often, you might be wondering if it’s all a scam. The cold, hard truth is that Quickbooks has helped us organize the horrible mess that was our business finances, getting them to a place where it’s all more or less automated and ready to go.

Quickbooks consistently provides some of the most user-friendly and intuitive accounting software for freelancers, so we have no problem recommending it as one of our top picks. Depending on the type of business you own (whether you’re classified as a sole proprietorship, S corp or, LLC), there’s a different Quickbooks software out there for you.

The best choice for freelancers? It’s hands-down Quickbooks Self Employed, which makes it easy to separate your personal and business finances with just the click of the button. Plus, Quickbooks Self Employed helps you track mileage, store receipts, and even calculate your estimated quarterly tax payments to help you stay on top of your current financial situation.

If all of that wasn’t good enough, Quickbooks Self Employed even has a number of different bundle options available that let you quickly and instantly connect your TurboTax account for a seamless process come tax time. What’s not to love?

2. Tax software: TurboTax

Long a staple of the do-it-yourself tax software industry, TurboTax is our top choice for a freelancer’s tax software. These days, TurboTax offers a variety of different products, each designed to meet the needs of a different individual, whether they be military, small business owners, or freelancers.

For freelancers, the best TurboTax software is the self employed program, which makes it easy to file that Schedule C at tax time. That being said, we HIGHLY recommend using TurboTax Self Employed Live, which allows you to connect directly with a CPA or tax lawyer who can answer your questions at any time – even when it’s not tax season.

Unless you’re already a tax professional, these awesome folks at TurboTax can make it easy to sort through the ridiculous amount of tax legislation that affects freelancers every year. If you want to get really fancy, though, you can sign up for the TurboTax Self Employed Live/Quickbooks bundle and save money by getting these two great softwares all at once!

3. Personal Finance Software: Mint

Okay, okay, at this point, you’re probably starting to wonder if this whole website is just a cover for Intuit to advertise their services, but we swear we’re legit! We just really love Intuit’s suite of different finance softwares!

Unlike both Quickbooks and TurboTax, Mint is a totally free personal finance software that makes it super easy to stay on top of your current financial situation. To get started on Mint, all you need is to make an Inuit account or log in to the account you use for TurboTax and Quickbooks.

From here, you can securely connect your bank accounts, credit cards, and investment accounts to get a bird’s eye overview of how you’re doing financially. Mint even lets you get unlimited access to your credit score and sends you alerts if anything changes.

Oh, and it’s 100% free, so you really have no reason not to sign up!

4. Invoicing Software: PayPal

If you accept payments digitally, there’s no better service than PayPal. Long thought of as the domain of avid eBay shoppers, PayPal has reinvented itself into one of the most reputable brands of invoicing and digital payment processing software around.

With PayPal, small business owners can quickly and easily create and send invoices and estimates to clients anywhere in the world. Plus, you can set up your PayPal business account to accept payment in nearly any foreign currency, opening up your business to a world of possibilities.

If you still wanted more from your invoicing software, PayPal allows for easy eCommerce integration as well as the ability to accept credit cards in-Person with its POS payment systems. Oh, and PayPal offers reasonable rates for most of its transactions, keeping more money in your pocket.

5. Project Management Software: Trello

At some point in our lives, we’ve all missed a deadline. But, as a freelancer, your reputation is everything, so you can’t risk upsetting your clients. Make it easy to manage your projects and stay on top of your game with Trello, one of the best project management software options for freelancers.

Trello offers a variety of different membership options, but with a free plan, you can quickly and easily create to-do lists and track projects toward their completion. Plus, you can invite others to collaborate with you on projects, helping to keep your clients informed of your work, every step of the way.

The Best Travel Rewards Credit Cards of 2019

If you’ve had time to build up an excellent credit history over the years and are starting to think about getting into the rewards credit card game, a travel card is a great option. Particularly for people who travel frequently, a travel rewards credit card can help you get plenty of travel-related perks without having to do any extra leg work. What could be better?

That being said, there are so many different travel credit cards out there that it can be tricky to find the one that’s just right for your needs. With so many options, how could you possibly find the one that’s just right for you?

Luckily, we’re here to help. Coming up, we’ll walk you through the ins and outs of the best travel credit cards and give you some A+ advice on how to choose the one that’s right for your needs.

How to choose the right travel rewards credit card

Selecting a travel rewards credit card is no easy feat. With quite literally dozens of options available to US citizens, it can be difficult to figure out which ones have rewards that are actually worth your time. These are the top things you should look out for when buying a travel rewards credit card:

Annual fees

These days, the vast majority of travel rewards credit cards have an annual fee. An annual fee is a charge that a credit card issuer levies against you just because you have the account open. This may seem ridiculous (and in many cases it is), but these fees are basically in place to protect the card issuers against people who never use the card but abuse the rewards.

For the most part, travel reward credit card annual fees are in the range of $25-$500. At this point, you might be saying, “Whoa, that’s a wide range.” This range might be surprising to you, but the cards that are at the higher end of the range often offer what we call “premium benefits,” or awesome rewards that you get simply for being a member.

These benefits almost always include airline lounge access when you start talking about annual fees in the $300-$500 range. Cards with annual fees in the $25-$300 range often have small premium benefits, like free checked bags, in addition to the ability to earn miles and points. On the other hand, cards with no annual fees tend to offer only pay-as-you-go rewards, where you need to spend money on the card to earn points or miles.

Don’t want to pay an annual fee? No problem. There are quite a few awesome travel rewards credit cards out there that won’t cost you a single penny.

APR (Interest Rates)

While no one likes to talk about interest rates on credit cards, it would be foolish to open a credit card without keeping this important information in mind. The downside to nearly any rewards credit card is that you’re almost always going to get slapped with higher APRs than you would on basic credit card.

This might seem counterintuitive, as you usually need to have good to excellent credit to open one of these cards, but it’s just a another way that issuers get money back for doling out all of these awesome rewards. So, check that fine print before you apply for your new rewards credit card!

Generic vs. co-branded rewards

When you start shopping around for travel credit cards, you’ll quickly start to notice that there are some cards that are linked directly to an airline, hotel, or other travel company, while others are offered directly by a bank. We call the linked cards “co-branded travel rewards credit cards” and the bank options “generic travel rewards credit cards”. Here’s the difference:

Co-branded travel rewards credit cards

These days, pretty much every airline offers a rewards travel credit card, as does nearly every high-end hotel chain. This kind of credit card is fantastic for people who exhibit high levels of brand loyalty and find that they’re frequently flying with the same airline or staying at the same hotel chain.

If this description fits you well, then you might do well with a co-branded travel rewards credit card. These cards make building up massive amounts of miles with a specific airline quite easy as they tend to offer better mile accumulation rates than generic cards. Plus, co-branded cards often offer better associated rewards, like free checked bags, priority boarding, and the like.

But, if you travel on a plethora of different airlines or stay at many different hotels, you might find that a co-branded credit card just isn’t worth it because of the generally high annual fee.

Generic travel rewards credit cards

If you’re not comfortable with the idea of tying yourself down to a particular airline or hotel, you might do better with a generic travel rewards credit cards. This kind of card is becoming more and more common thanks to their popularity among global travelers.

With a generic travel card, you get points for your purchases, which can then either be transferred to certain airline partners or used to “erase” a past travel-related purchase. The drawback to these cards is that they often come with fewer perks, as they don’t offer free checked bags or priority boarding. Also, the conversion rate between dollars and points is usually worse with these generic cards than with co-branded credit cards, so you’re not getting as much bang for your literal buck.

Sign-up bonuses

Many travel rewards credit cards offer sizable sign-up bonuses to convince you to open the card and spend money on it. These sign-up bonuses can get you as many as 70,000 miles if you spend $1000-$5000 (depending on the card) in the first 90 days of opening the account.

For many of us, this huge chunk of miles are the main reason for opening the card. Often, the sign-up bonus alone is enough to book free roundtrip tickets on an airline, so it’s definitely worth taking into account when choosing a card.

However, don’t be fooled by the allure of a sign-up bonus. If you’re tempted to open yet another card that you don’t really need, ask yourself if it’s worth the annual fee that’s almost inevitably associated with this sign-up bonus.

Our advice? Use sign-up bonuses to sway you between two cards that you’d be happy to have. You should always look to open a travel rewards credit card during a sign-up bonus promotion, but don’t recklessly open cards just because you can.

No foreign transaction fees

One of the best things about a travel rewards credit card is that they often have no foreign transaction fees, which is a lifesaver if you’re a frequent international traveler. While most credit cards charge you a 3% fee for using your card outside the US, travel cards will often charge you nothing for the same transaction.

If you travel outside the US frequently, you shouldn’t even consider opening a card with foreign transaction fees. Nowadays, especially in Europe, cash is becoming less and less common, so you’ll be hard-pressed to get around without a credit card. Why should you have to pay an extra 3% just to do so in another country?

Finding the right rewards

Okay, now for everyone’s favorite part: the rewards. When you open a travel credit card, you do so pretty much solely for the rewards, so you’ll want to make sure the rewards you’re getting are worth your time and money. These are the top rewards to look for in a travel credit card:

Miles and points

The best part of a travel credit card is that you can earn airline miles and loyalty points just by doing your regular spending. Basically, this is free money that you’re getting back for no extra work on your end.

While points and miles accumulation rates vary, the vast majority of cards will give you a dollar to mile ratio. The best cards will offer a rate of $1/3 miles while some will offer as little as $1/0.5 miles. We personally wouldn’t take anything less than a $1/1 mile ratio, though you’ll usually have to pay an annual fee for anything better than a $1/2 mile rate.

Free checked bags

If you get a co-branded airline credit card, you’ll want to look for a card with free checked bags. This is one of the few perks that directly saves you money on every flight you take (assuming you frequently check bags) as you can save upward of $50 one way using this checked bag fee waver.

The best co-branded cards will also give you free checked bags for up to 6 people on your travel reservation so you can share the love with family and friends. Generic cards rarely offer this perk, though.

Priority boarding

Many co-branded credit cards offer you priority boarding access during a flight. This means you can get on your flight earlier than you would with that basic economy ticket you purchased, for priority access to the overhead bin space. We wouldn’t say that this reward is a dealbreaker for a travel credit card, but it’s a nice perk, especially if you don’t already have premier airline status.

Travel insurance

A little known fact about travel credit cards is that many of them offer some form of travel insurance if you book a large portion of your trip on that card. Most airline cards will give you lost luggage, rental car, and even travel delay coverage free of charge. While we wouldn’t rely solely on this perk for our travel insurance, it’s a nice additional policy that doesn’t cost you any extra cash.

Airport lounge access

The best travel credit cards out there (read: the ones with the highest fees) also offer you unlimited access to airport lounges, which are a great retreat from the hullaballoo of the modern airport. These cards almost always have annual fees above $200, with some topping the list at $500 each year.

This perk is really only worth it if you travel a lot but not enough on a given airline to get priority status with them. Plus, you can always pay to get into a lounge, so we wouldn’t decide on a specific card just for this perk.

Financial Wallet Credit Card Money Cash Investment

The Best Travel Rewards Credit Cards

Now that you’re a veritable expert in the world of travel rewards credit cards, let’s get right to the reviews. Coming up, here are our reviews of the top travel rewards credit cards around!

But first, here’s a quick peek at the different cards we’ll discuss in our review:

CardBest ForAnnual FeeAPR
Capital One Venture OneNo-fee generic card$017.24% – 24.24%
Jet Blue CardNo-fee co-branded card$017.99% – 26.99%
Alaska Airlines Visa SignatureCo-branded airline rewards$7517.99% – 25.99%
Delta SkyMiles GoldFree checked bags$9517.74% – 26.74%
AAdvantage Executive World ElitePremium perks$45017.74% – 25.74%

Capital One Venture One

Best No-fee Generic Travel Rewards Credit Card

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For a credit card with no annual fee and a whole lot of great perks, you really can’t beat the Capital One Venture One. This generic travel rewards credit card lets you earn points that are useable on any airline. What more could you want?

With the Capital One Venture One, you earn 1.25 miles per dollar on every single purchase you make, plus an astounding 10x the miles when you book hotels with the card through Hotels.com (offer valid until January 2020). Plus, the Venture One has no foreign transaction fees, allowing you to make purchases anywhere in the world.

Also, Capital One has one of the best generic card rewards conversion programs with the ability to transfer your earned points into miles with a selection of different airline partners. Or, you can use their Purchase Eraser to pay off a travel-related transaction using your miles.

Ultimately, the Capital One Venture One is a solid bet for anyone looking to get quality travel rewards without a major annual fee, making this a great option for new and experienced credit card users, alike.


JetBlue Card

Best No-fee Co-Branded Travel Rewards Credit Card

⭐⭐⭐

JetBlue made a name for themselves as an affordable, yet comfortable airline. Their travel rewards card fits perfectly into this model.

With no annual fee and a selection of worthwhile perks, the JetBlue Card is a good all-around credit card for entry-level users. This card gives you 3x the points on any purchases made with JetBlue, plus 2x the points on any purchases made at restaurants or grocery stores.

When using the JetBlue card, you also get no foreign transaction fees and a 50% inflight savings on all food and drink purchases with the airline. Although you don’t get any free checked bags, the JetBlue Card allows you to use your miles to buy flights on any day for any seat, which is more than you can say for other airlines.

The best part of this card is the 2x mileage bonus for purchases on food, plus the lack of annual fee. So, if you need a no-frills card that gets you tangible rewards, the JetBlue Card might be for you.


Alaska Airlines Visa Signature Card

Best Domestic Airline Travel Rewards Credit Card

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Long known to be one of the best airline credit cards in the game, the Alaska Airlines Visa Signature wins the award for the best co-branded card in our review.

What makes this credit card so amazing, you might ask? First and foremost, the Alaska Airlines Visa Signature card comes with one annual “Companion Fare” ticket, which allows you to buy a second ticket on nearly any reservation for your partner for just $121 when booking on alaskaair.com. Depending on where you’re flying to, you could save a whole lot of money with this benefit.

Plus, this card gives you a free checked bag on Alaska flights for you and up to six guests that you include on your reservation. You also get 20% back on in-flight purchases on Alaska, plus 50% off on Alaska Lounge day passes when you pay using your card.

If all of that wasn’t good enough, this card has no foreign transaction fee so you can use it anywhere in the world. With a relatively low annual fee of just $75 and the ability to earn 1 mile per dollar spent, the Alaska Airlines Visa Signature is one of the best co-branded cards around.


Delta SkyMiles Gold Card

Best Free Checked Bags Travel Reward Credit Card

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The old stalwart of Delta’s co-branded credit card offerings, the Delta SkyMiles Gold Card offers well-rounded benefits for a reasonable annual fee.

With the Gold Card from Delta, you get two miles for every dollar spent on Delta flights, as well as one mile for every dollar spent in your day to day life. Plus, you get instantly upgraded to Main Cabin 1 Priority when you book your reservation using this card, regardless of the fare type you choose.

The best part about this card? You get a free checked bag for each person in your reservation, which could save you $240 on a round-trip flight for a family of four. Oh, and this card now gets you discounted access to Delta’s exclusive lounges in airports around the world.

With no foreign transaction fees and a reasonable $95 annual fee that’s waved for the first year, the Delta SkyMiles Gold Card is designed for a life on the move.


AAdvantage Executive World Elite Mastercard

Best Premium Travel Reward Credit Card

⭐⭐⭐

Premium travelers deserve a travel credit card with premium benefits – that’s where the AAdvantage Executive World Elite Mastercard comes into the picture.

With the same set of standard mileage benefits (1x miles for every $1 spent, plus 2x miles for ever $1 spent on American Airlines), this card makes up for an otherwise lackluster miles program with an insane set of premium travel benefits.

The AAdvantage Executive World Elite Mastercard gives you complimentary access to the Admirals Club (a $650 value), plus access for authorized user. You also get a Global Entry or TSA Pre Check application fee credit and free checked bags on American flights for you and up to 8 guests on your reservation.

Oh, and with priority boarding on American flights as well as priority check in and airport screening, you’ll whiz through the airport and be well on your way to a trip around the world. Sure the annual fee is $450, but if you travel enough, the benefits make this card well worth the money.

Credit Card Boot Camp: The Basics

Looking to open your first credit card? Don’t know where to start? Don’t worry, we’ve got you covered.

We understand how overwhelming it can be to open your first credit card, which is why we’re here to walk you through the basics in this Credit Card Boot Camp. Let’s get started!

What is credit?

These days, credit cards are just a part of life. Whether you love them or hate them, credit cards have completely changed the way in which we, as consumers, go about our daily lives. From reducing our reliance on cash to creating a massive amount of consumer debt, credit cards have, for better or for worse, made their mark on the global economy.

But where does that leave you, the consumer? How can you possibly wade through the insane number of different credit cards to possibly find the one that best fits your needs.

Well, it all starts with the basics. First things first, let’s find out: What is credit, anyway?

If you’ve never used a credit card before, you might not fully understand what credit is. In fact, even if you frequently use credit cards, have four car loans, and student debt, you may not fully understand the concept of credit.

Let’s keep it simple: Basically, credit is just borrowed money. You can get credit from friends or family who let you borrow a few hundred bucks to get through a rough patch, or you can borrow money from a bank to buy a house (that’s called a mortgage) or to pay for college.

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Types of Credit

That being said, there are many types of credit out there, so let’s discuss each in more detail:

Service credit

If you’ve ever signed a contract with a service provider, like a credit card or utility company, you’re actually engaging in a form of credit known as service credit. In this form of credit, you enter into an agreement that you’ll pay all or part of the previous month’s balance for the services you’ve received, whether that be in household electricity or cell phone data. In fact, your monthly gym membership is considered a service credit as you’ve agreed to pay the gym each month for the privileges of membership.

Installment credit

Installment credit is a type of credit in which a creditor (usually a bank or financial institution) agrees to loan you a specific amount of money, often in the form of a loan. As the person who has taken out this money, you agree to pay back the funds within a specific period of time.

In exchange for the convenience of having this money, you also agree to pay back a specific amount of interest, in addition to your regular monthly payments. The most common types of installment loans include mortgages, car loans, and student loans.

Charge cards

A charge card is a type of payment card that looks and operates much like a credit card. Unlike a credit card, however, charge cards have balances that must be paid off, in full, every month.

Revolving credit

When we talk about opening a credit card, we’re talking about taking out a form of revolving credit. When you have revolving credit, a financial institution agrees to loan you a specific amount of money every month (or another time period, depending on your agreement), which you can choose to use to pay for certain items in your day to day life.

Each month, however, you must pay off the balance or “revolve” the debt, making a minimum payment to carry over that debt to the next month. When you pay off revolving credit on time each month, there is no additional interest charge, BUT, if you choose to revolve your debt (i.e. “carry a balance”), you will be liable not only for the money you owe, but for the interest rate as stated in your credit card service agreement.

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Why you need credit

To many people, the idea of regularly borrowing money or being in debt to another person or financial institution makes their stomachs churn. That sentiment is understandable: no one wants to owe anyone anything, so why would we ever choose to owe someone money on a regular basis?

It turns out that, with responsible use, credit is actually a really good thing. If you manage to build up good credit with financial institutions, over time, you’ll get a reputation as a responsible borrower who deserves lower interest rates.

This might not seem important to you yet, especially if you’re just starting out on your personal finance journey, but with time, you’ll probably find that you want to take out a loan to get a car, a mortgage, or to go to college. Additionally, should something ever happen and you need to borrow money in an emergency, with a good credit history, lenders will be more sympathetic to your cause and help you out with better terms of service.

Ultimately, revolving credit is something you want to have an excess of but to hope to never have to use. At the end of the day, we should all strive to pay off our credit cards in full at the end of every month, keeping the amount we actually owe to an absolute minimum.

How is a credit card different from a debit card?

At this point, you probably understand the benefits of having credit, or, more specifically, a credit card. But, you might still be a bit confused as to how a credit card differs from other forms of payment, such as a debit card.

Quite simply, a debit card is a payment method that is directly linked to your checking account. Debit cards are effectively a replacement for checks in our daily lives.

Back in the day, people used to write checks for everything, from their groceries to their restaurant bills. Debit and credit cards have long since taken over as the primary form of payment in nearly all life circumstances (besides those where you would use cash or bank transfers) as they provide a more secure method of instantly transferring money from one account to another.

Basically, when you pay with a debit card, the money comes directly out of your checking account. You aren’t borrowing money from anyone and your card will actually be declined if you try to spend more money than you have.

With a credit card, on the other hand, you can spend up to your monthly credit limit without having that money in your bank account. Effectively, you’re borrowing that money from your credit card company each month until you pay it off.

How does a credit card work?

Now that you understand what credit is, let’s start getting into the nitty-gritty of how credit cards work. Here’s what you need to know:

Making purchases with a credit card

Even if you’ve never had a credit card before, chances are pretty high that you’ve seen someone, whether it’s a parent or a friend, make a purchase with a credit card at some point in your life. As children, we remember being very confused by credit cards, once asking our parents if the meal we had just eaten was free because we saw them hand the waiter a piece of plastic instead of some money…

It turns out, however, that making a purchase with a credit card is purposefully super simple. Once you open your account and get your credit card in the mail, all you have to do is swipe, insert, or tap your card at a credit card machine to make a purchase. It’s as simple as that!

As you might imagine, the simplicity of the whole process is one of the many reasons why so many people end up with so much consumer debt (more on that later). But, this simplicity is also one of the many reasons why people love credit cards and why you should have one in your life.

When used responsibly, credit cards can make your everyday purchases so much simpler and, in many countries, cash is being phased out to make room for increasingly digital payment options, so without one, you’ll soon be left behind!

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Paying a credit card bill

If you’re not like us as children and you understand that purchases made with credit cards are not, in fact, free, you won’t be too terribly shocked when you get a credit card bill in your postbox or inbox at some point after opening your first account.

Paying off a credit card bill is something you should strive to do every single month as it eliminates the possibility that you’ll need to pay interest on your purchases. When you receive that credit card bill, you’ll have the option to pay either:

  • the credit card minimum
  • the balance in full
  • an amount between the minimum payment and your total balance

While the only way to avoid paying interest rates is to pay your balance off in full every single month. Understandably, there will be times in your life where this won’t be possible, due to a change in your financial situation or an economic emergency. But, if you strive to pay your full statement balance on time every month, you’ll probably find yourself in a strong financial position.

Automatic bill pay

If you want to be sure that you don’t miss a payment (some of us are just forgetful like that), a great way to avoid late fees and paying interest on your credit card is to set up automatic bill pay with one of your checking accounts. These days, nearly all credit card companies allow you to set up “recurring payments” that can automatically pay your full statement balance off each month on your due date.

When you do this, you effectively treat your credit card as a debit card, limiting yourself to only spending the money you have. We highly recommend taking this route with your credit card spending as it severely limits your ability to take on unnecessary consumer debt that will impact you for a long time to come.

That being said, if you do set up automatic bill pay for your credit cards and find that you need to carry a balance for whatever reason, be sure to turn off these payments or you might overdraw on your checking accounts!

Getting a credit card that’s right for you

Once you decide that it’s time to open a credit card, you now need to understand the different types of credit cards that are available to you. Then, it’s time to choose a selection of credit cards to apply to and hope for the best. Before you go down that rabbit hole, however, here’s some need-to-know information about getting a credit card that’s right for your needs.

Types of credit cards

Not all credit cards are created equal. In fact, many of the most popular credit cards offer a variety of rewards and other perks that make opening that particular card more attractive to people with good credit histories. Here are the different types of credit cards you’ll encounter on your search:

Basic/low-interest credit cards

Basic and low-interest credit cards offer little more than a plastic card to pay with at storefronts and a monthly revolving credit line. These cards are pretty bare-bones and have none of the perks and frills traditionally associated with “rewards” credit cards.

This might sound boring and not very fun, but basic credit cards are the perfect starting point for any new credit card holder. Basic cards tend to have lower entry requirements, lower initial interest rates, and more leniency when it comes to accepting applicants with minimal or poor credit history.

So, if you’re new to the credit card game, this is where you’ll start.

Student credit cards

While most credit applications require you to input information about your current employment status and income, many banks recognize that students, although technically “low income” at the moment, are investing in themselves and are likely to have higher incomes after graduation. Many students find that student-specific credit cards are a great option for them as they often offer low fees and low-interest rates in a convenient, simple-to-use package.

However, just because you’re a student doesn’t mean you’ll automatically get approved for that student credit card. In fact, the Credit Card Act of 2009 explicitly prohibits financial institutions from approving people under 21 for credit cards unless they have a co-signer or proof of income. So, if you have trouble getting approved for a student credit card, you might want to try a secured credit card, instead.

Secured credit cards

If you have a bad credit score (more on what that means later) but want to work on building up your credit again, a secured credit card is a great choice. In exchange for offering you credit, despite your poor credit history, secured credit cards require that you put down a security deposit (the amount varies) when you open the card.

When you close your secured credit card or upgrade to a regular credit card, you automatically get your security deposit back, unless you have an unpaid balance. Secured credit cards are a great way to build credit when you’re not able to get approved for a regular card, especially if you’re younger or looking to restart your financial life.

Rewards credit cards

Rewards credit cards, the veritable fan favorite of any credit card option, is a kind of credit card that gives you some sort of bonus every time you make a purchase. Often, these cards give you airline miles, in-store discounts, or other such benefits simply for buying things with that credit card.

The vast majority of rewards credit cards are either travel cards, cashback cards, or store credit cards (such as those for Target and Best Buy), though there are others out there. Rewards credit cards can be great for anyone that frequently spends a lot of money on credit (hopefully you pay it back each month!) as you can basically get free stuff for your normal spending habits.

However, the vast majority of rewards credit cards require that you have good to excellent credit already established. Plus, many of the best credit cards come with annual fees (especially airline credit cards), so you need to spend a lot to make it worth the money.

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Choosing a credit card

With all of these different credit card options to choose from, it’s easy to feel all overwhelmed by all of your options. However, if you’re just starting our on your credit card career, chances are pretty high that your decision has more or less been made for you as you’re probably limited to a basic, student, or secured credit card for the time being.

That being said, even within those categories, there are a lot of great options to choose from, so you still have some searching to do. Here are some of the top things to look for when choosing a particular credit card to apply to:

  1. Look for low-interest rates. Especially when you’re just starting out, getting a credit card with the lowest possible interest rate can make it easier on you should you ever have to carry a balance.
  2. Find a card for your credit history. If you don’t already have a credit history or your credit score is poor, you’ll want to target your search to those credit cards that are made for people in your situation. Googling “credit cards for bad or no credit” is a good way to get started.
  3. Seek out sign-up bonuses. If you’ve got good enough credit to qualify for a rewards credit card, a sign-up bonus is a great incentive to apply. While we don’t recommend applying solely for the sign-up bonus, it can sway your decision when you’re stuck between two great choices.

Need-to-know credit card information

While credit cards sound great, it’s important to understand that overwhelming consumer debt has and continues to ruin a lot of lives. Thus, anyone interested in opening a credit card account should thoroughly understand the basics of credit cards and how to use them appropriately.

We here at Freelance Finance firmly believe that appropriate knowledge about how credit cards work can help people avoid the trap of credit card-related consumer debt, so here’s the information you need to know:

Understanding the credit card terms and conditions

Although many of us are quick to skip over the terms and conditions agreement of nearly every single thing that we sign up for, when it comes to financial products, like credit cards, it’s definitely worth your time and energy to read this document thoroughly. Even if you don’t quite yet understand all of the technical jargon involved with the terms and conditions of your credit card, the more you read these things, the more likely it is that you’ll learn more about how it all works.

The terms and conditions agreement of your credit card is worth reading because it often contains valuable information about the rates and fees that you agree to when you open the account. While some of these fees are advertised when you research the account, some are kept purposefully hidden to trick and confuse consumers. Here are the top things to look out for:

What is APR?

APR – or annual percentage rate – on a credit card is effectively the interest rate that you agree to get charged with, should you not make your payments in full or on time. This rate varies greatly from credit card to credit card, and you’ll often find that credit card terms and conditions will give you a range of APRs available for that particular card.

Each financial institution assigns you an APR based on your individual creditworthiness (i.e., your credit score and history) and the type of card you’re trying to open. Rewards credit cards often have the highest APRs, while basic credit cards have the lowest.

If you open a card and get smacked with a high APR, don’t despair. Many companies start you out with a high APR, but with regular, reliable payments, you can often ask to lower your APR after a few months.

What is a credit limit?

Perhaps the first thing you’ll notice after you open a credit card is that you’ll have a specific “credit limit” available to you. Basically, a credit limit is the amount of money you can borrow each month on your card.

This credit “revolves” and resets each month, so if you have a credit limit of $1000, you can spend up to that amount in January, and it will reset so you can spend up to $1000 in February. Should you try to spend more than $1000 in January, your card will be declined.

Your credit limit is determined by your creditworthiness, but once you start opening a few different accounts, you’ll probably find that there’s not a lot of rhyme or reason to the game of credit limits. If you have poor credit, you’ll probably get a low credit limit initially. But, if you have excellent credit, you’ll find that some card issuers give you a high credit limit while others give you relatively little.

Our advice? Be responsible and try to minimize your credit card use. Don’t “max out” your credit cards by spending your limit each month. Instead, opt to spend 30% or less of your available credit.

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What are credit card fees?

Even if you have a basic, low-interest credit card, you’ll have a whole host of fees listed on your credit card terms and conditions. These are the most common fees you’ll find:

Annual fees

Many credit cards, especially rewards cards, come with annual fees that range between $25 and $500. Generally, the better the rewards, the higher the annual fees, though this isn’t always the case. If you’re paying more than $150 for an annual fee, your card probably comes with some swanky benefits, like airline lounge passes, that make the fee well worth it. However, most basic and student cards have no annual fee, which is a good choice for the vast majority of people.

Foreign transaction fees

Unless you get a travel credit card, chances are very high that your card will charge a “foreign transaction” fee for any purchases made outside your home country. If you travel a lot, this is a huge pain as these fees are often in the 3-5% range. This is why travel credit cards with no foreign transaction fees are a huge bonus.

Cash advance fees

In some instances, you can use your credit card at an ATM to take out cash in a move known as a “cash advance.” When you do this, you’re often limited to about $200 a month and charged an additional fee for the convenience.

Understanding your credit score

Once you apply for your first credit card, you’ll have access to information about your credit score (you can look up this information earlier, but it’s not necessarily worth it until you start taking out credit). A credit score is basically a three-digit number that quantifies your creditworthiness to lenders who use this number to decide if they want to lend you money.

Credit scores are actually surprisingly complex, and the methods used to calculate them aren’t 100% public information. Since credit scores are calculated by credit bureaus, you actually have three different scores that an institution can use to asses your creditworthiness.

For the most part, making your monthly payments in full and on-time is a great way to build your credit. Keeping the amount of revolving credit you use each month to a minimum (about 30% of your credit limit) is also a good move. It’s also important to keep the number of credit applications you make to a minimum as multiple applications make lenders think you’re looking to take out more credit than you can handle.

Since credit scores are such a tricky concept, we’ve dedicated a whole article to learning more about them, which you can check out right here.

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Applying for your first credit card

Okay, at this point, you’ve got a pretty darn good understanding of the world of credit cards as we’ve discussed everything from why you need credit to the kinds of credit cards you might be interested in. Now that you’re a knowledgeable potential credit card owner, it’s time to get you that first credit card.

The credit card application process

Although it sounds scary, applying for a credit card is actually quite simple. Here’s what will happen:

  1. Make a list of the top five credit cards you’d like to apply to, starting with the option you’re most interested in.
  2. Collect all of your personal financial information, including your social security number, your current income, your employment status, and the like.
  3. Click “apply” on the credit card information page and fill out the form using this information.
  4. Read and understand the terms and conditions
  5. Press “submit” and hope for the best!
  6. Hopefully, your application is automatically approved and you can celebrate.
  7. If your application is not automatically approved, one of two things can happen: you can be denied or deferred. If you’re denied, you can go ahead and repeat the process with another credit card on your list. If you’re deferred, the credit card issuer has flagged your application for additional review by an actual human being, who will review your case and see if you’re trustworthy enough to open an account. Often, you will be contacted by phone or email for more information. If you are ultimately denied, you can go ahead and apply for a different card.

Credit card pitfalls

Credit cards are awesome, though they’re often misused and abused to the point that they become unsustainable or even detrimental to an individual’s financial health. Here are some of the most common credit card pitfalls we see that lead to overwhelming amounts of consumer debt:

  • Not paying off balances in full. If you’re struggling to pay off your balances each month, take the time to reflect on why that is. Is it because you’re in a difficult spot and need to borrow money? Or is it because you’re buying things you just can’t afford. If it’s the former, perhaps consider getting a loan with a better rate than your credit card. If it’s the latter, then you may need help managing your spending habits.
  • Opening too many cards. Many people are tempted by sign-on bonuses and other similar marketing gimmicks that encourage them to open more credit cards than they can truly handle. If you’re feeling like the number of credit cards you have is making it difficult to keep track of your spending, consider closing a few accounts.
  • Ignoring fees. Should you choose not to read the terms and conditions of your credit card, you may not realize that your card comes with a whole host of fees that are getting tacked onto your bill each month. Whether it’s a foreign transaction fee or an annual fee, these payments add up and can do damage to your financial health.
  • Forgetting to make a payment. Despite your best intentions, you may forget to make a payment every once in a while. At the very least, it’s worth setting up auto-pay on your cards to ensure that you make the minimum payment on your card each month to avoid additional fees.