The smartest way to use a credit card that has rewards is to make purchases that you can pay off fully by the due date each month. Avoiding interest is key to maximizing the value of a rewards credit card, since credit card interest rates are higher than credit card rewards rates.
Smartest Way to Use a Rewards Credit Card
Pick the right credit card. Credit cards offer different types of rewards. If you travel a lot, a credit card with points or miles might be the best option for you. If not, a cash back credit card might be the more profitable choice.
Get the sign-up bonus. Many rewards credit cards offer an introductory bonus for users who charge a certain amount to the card within a specified period of time after opening an account. Make sure that the spending requirement for the sign-up bonus is attainable without having to overspend.
Use the card for the right purchases. Many rewards credit cards have different rewards rates for different expense categories – travel, dining and groceries, for example. You can use WalletHub’s Island Approach to determine the best way to distribute your purchases among multiple cards.
Cut down overspending. As appealing as it is to see your rewards balance go up, making purchases to the brink of your credit limit will likely reflect badly on your credit score. Plus, it can put you at risk of accruing more debt than you can comfortably manage.
Pay your balance in full. Unless you pay your balance in full each month, you will incur interest charges, which could quickly outweigh any rewards earned.
The easiest way to make money with credit cards is by earning rewards, particularly cash back rewards and big signup bonuses. So long as you use a cash back credit card for purchases you were going to make anyway, and then pay your bill in full to avoid interest, you’re getting free money back. Same goes for credit card signup bonuses: As long as the spending requirement is money you would’ve spent in that timeframe anyway, the bonus is free money.… read full answer
Other ways to make money with credit cards, at least indirectly, include peer-to-peer lending. Nevertheless, taking full advantage of rewards remains the easiest, most reliable way to make money with credit cards, as you can discover in greater detail below.
Here’s how to Make Money with Credit Cards:
Get a cash back credit card.
Any rewards credit card will reduce the cost of the purchases that you make, but cash back credit cards make it easiest to make money. Cash rewards cards give you cash back on purchases that you can redeem for statement credits, personal checks and/or bank account deposits. You can also set up automatic cash back redemption, so that once your earnings hit a certain amount, they’re cashed out according to your preferences.
The average cash back credit card gives a little more than 1% cash back on purchases, but you can find cards with higher earning rates. Check out the best cash back credit cards to see which will make you the most money.
Earn a credit card signup bonus.
Many of the best rewards credit cards come with high signup bonuses for meeting a minimum spending requirement in the first 1-3 months. For example, you could make $150 to $500+ from rewards bonuses without spending more than you would otherwise, just by using the right card.
Once you earn the signup bonus, one redemption option is to apply it directly to your credit card bill to cover purchases you’ve made. You might also be able to redeem for a check, bank account deposit, gift cards, travel, merchandise and more, depending on the card, if you’d rather save money another way.
Cash in credit card points/miles.
The simplest way to cash in your points or miles is by using them to pay for purchases that you’ve charged to your card. You basically get those purchases for free. Most credit card issuers will let you apply your rewards to past purchases, usually at a rate of a bit more than 1 cent per 1 point/mile.
You can also cash in rewards for gift cards to the places you shop at most. Another option to make money is to sell your rewards to friends or family members, but that’s a bit trickier.
Buy gift cards with a bonus rewards card.
Some credit cards offer bonus rewards on groceries. That would create the opportunity to buy general-purpose gift cards – like Visa gift cards, which can be used anywhere. There are fees for buying card-network gift cards, depending on the value of the gift card.
Try peer-to-peer lending.
Peer-to-peer lending is exactly what it sounds like: lending money to your peers. Essentially, you finance someone else’s personal loan and get paid back with interest. One of the reasons people take out personal loans is to refinance credit card debt. If you become a lender on a peer-to-peer lending site (such as LendingClub), you can give money to people who are looking to pay off credit card bills, and then personally reap the rewards of their interest payments.
However, this is really only worthwhile if you have extra money you don’t need at the moment and are willing to get repaid over the course of months or years. There’s also some risk your loan won’t ever be paid back in full.
Using credit cards strategically provides unique opportunities for cardholders to make money. For example, applying for a new card with a signup bonus during a time when you’ll be making large purchases can put extra money in your pocket without much effort.
However, using a credit card irresponsibly just to earn more rewards won’t be worth it. If you don’t pay your credit card bill in full each month, high interest rates will quickly eat away at your earnings. And if you start missing payments, your credit score will suffer.
In order to fully take advantage of credit card rewards, start by building a good or excellent credit score (needed to qualify for the best rewards credit cards), then compare offers to find the best credit card for your spending habits, use it responsibly and pay the bill in full every month. You can’t take maximum advantage of credit card rewards if expensive interest charges are subtracting from your earnings.… read full answer
Rewards credit cards are available to people of all credit levels, though. And there are some steps anyone can take to maximize their rewards-earning prospects, regardless of their current credit score.
How to Take Advantage of Credit Card Rewards:
1. Pick the right rewards credit card(s).
Finding the best rewards credit card for your spending habits takes a little legwork, but it’s worth the trouble. You’ll want to find a credit card that gives you the most rewards for your biggest spending categories - such as groceries or gas - and preferably, a credit card that offers a nice signup bonus for spending a certain amount within the first few months. One with no annual fee would be ideal, too.
Whichever card you pick, make sure you’re familiar with its rewards program: the value of its rewards units (points, miles or cash back), how to redeem them, whether your rewards expire, any minimum redemption amounts, etc. Cash back cards are generally a good choice because their rewards can’t be devalued.
2. Use more than one credit card.
If you can’t find one rewards credit card that will provide top-notch returns on all your purchases, try WalletHub’s Island Approach. By using different cards for different types of transactions, you can cobble together a better collection of rewards than you’re likely to find in a single package.
For example, you could use a high-earning gas rewards credit card to save on your daily commute and a card with good supermarket rewards to save on groceries. Using a separate low interest credit card for balances that you won’t be able to pay in full by the due date will also keep your everyday purchases from accruing interest.
It takes a little bit of organization, but it’s well worth the effort if you can manage the accounts responsibly. For starters, that means you’ll want to apply for one card at a time – don’t apply for the second one until your credit score has bounced back from the first hard inquiry (3-12 months).
3. Find the most valuable redemption method – for both you and your card.
All credit card rewards are not created equal. For starters, there are a trio of different rewards currencies to choose from: points, miles, and cash back. It’s an important decision, too. The value of rewards points and miles varies by card as well as the redemption method used. For example, redeeming rewards points or miles for cash can often mean sacrificing value in the process. True cash back rewards, on the other hand, are simply worth a percentage of the dollars and cents spent on each purchase. That’s why cash rewards can’t be devalued, unlike points and miles.
Given how many good rewards cards are out there, it’s important to comparison shop for an offer that suits your spending and payment plans. Most of the time, you really can’t go wrong with a flat-rate cash back credit card with no annual fee. But if you’re a frequent traveler, for instance, you may want to consider a credit card with travel points or miles because you’ll have regular opportunities to earn the card’s maximum rewards rate as well as to redeem what you earn. However, some travel cards require you to redeem through the issuer’s online rewards portal to get top dollar. Others give you the flexibility to use rewards to pay for any recent travel purchase made with the card, including bookings made on third-party travel-comparison websites.
In other words, the details really do matter when it comes to earning, redeeming and ultimately maximizing credit card rewards.
4. Pay your balance in full every month.
Credit card interest rates are a lot higher than credit card rewards rates. So, in order to take advantage of credit card rewards and avoid seeing your earnings swallowed up by finance charges, make sure to pay your full statement balance by the due date every month.
Many credit cards’ terms also reserve the right to stop giving you rewards when you’re late on your bill, and some will forfeit your unredeemed earnings completely. Set up your auto-pay function to ensure you never miss a due date.
5. Redeem your rewards regularly.
Once you have your rewards, be vigilant about redeeming them often. Some cards allow you to set up auto-redemption when you reach a certain rewards threshold, and that’s a good idea. If you’ve reviewed the rules of your rewards program, you more than likely read the part where the entire program - earn rates, minimums, and redemption values, in particular - can change at any moment. Your card issuer could even decide to cancel the entire program, if they so choose.
The best thing you can do to avoid losing your rewards or having them devalued is to use them regularly. Besides, the whole point of rewards is to actually enjoy them and save yourself some money. Regular redemption helps you do just that.
6. Take advantage of any bonus rewards your card may offer.
Many rewards credit cards give extra points for spending in certain categories or for using the card issuer’s shopping portal for certain purchases. These can be great opportunities to rack up extra rewards if you were going to make those purchases anyway.
For example, if your card gives 4% back for restaurant purchases, use it at restaurants. Or if your credit card gives 10% more rewards for shopping at a certain retailer through the card issuer’s shopping portal, it’ll be well worth those few extra clicks.
7. Consider applying for a new credit card with a big signup bonus every now and then.
Signup bonuses can be a good way to boost your rewards if you can meet the requirements. Usually, signup bonuses require you to spend a certain amount of money within a set time period (3 months, on average) after opening the account. If you were going to spend that much on the card anyway, why not get paid a few hundred extra dollars for it?
That said, aiming for new signup bonuses is only a good idea if you have control of your spending habits, and you know you won’t blow your budget trying to qualify for the extra rewards. And it’s important to note that you shouldn’t do this too often – opening too many new credit cards in a short period of time can be bad for your credit score.
While this is practical advice to maximize your current rewards-earning capabilities, it’s worth mentioning that the best rewards credit cards require good or excellent credit for approval. So to get the best rewards bang for your buck, you should start by checking your credit score for free on WalletHub. You’ll also get personalized recommendations to improve your credit.
It’s better to pay off your credit card than to keep a balance because paying the card off will save you money on interest. Credit card companies charge interest when you don’t pay your bill in full every month, but you’ll enjoy a grace period with no interest if you always pay your full statement balance by the due date.… read full answer
Some people think you need to carry a balance in order to see positive information on your credit report, but that’s simply not true. You don’t even need to use your credit card to build credit. Simply keeping an account open and in good standing is enough to help your credit.
Here’s why it’s better to pay off your card than to carry a balance:
If you pay your bill in full each month, you won’t be charged any interest on most credit cards, thanks to a grace period. But you’ll lose the grace period if you don’t pay in full one month, and you’ll have to pay your entire balance for two consecutive billing cycles to get it back.
You don’t need to carry a balance for a credit card to help your credit score. What matters most for credit building is meeting due dates and keeping credit utilization low.
Paying your bills on time doesn’t require you to pay your balance in full each month. You just have to make the minimum payment listed on your statement. But if you take on too much debt, you may find it hard to make your monthly payments.
Carrying a balance makes it harder to keep your credit utilization low, since your everyday spending will be added on top of the amount you’re carrying from month to month. It’s best to use less than 30% of the credit made available to you.
So, to recap, it’s better to pay off your credit card than to carry a balance because it builds your credit history just as well without subjecting you to interest charges. Just remember, not carrying a balance does not mean you have to stop using your credit card. There is a middle ground. A balance will be listed on your credit card statement whenever you make purchases, but if you pay that amount by the due date, you won’t really be carrying a balance.
Using your card regularly actually helps because having a credit utilization ratio between 1% and 10% is slightly better for your credit score than 0%. But credit utilization is based on your statement balance, and your monthly statement comes before the due date. So you can still pay your bill in full every month while doing right by your credit score.
Why 0% APR credit cards are an exception
During the 0% APR introductory period, your balance – whether from a purchase or balance transfer – won’t accrue interest as long as you pay the minimum amount required by the due date each month. So, keeping a balance is expected, but you do have to make monthly payments along the way. And if you don’t pay in full by the end of the 0% period, interest will come into play.
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