If you are looking for an easy way to budget, manage your money, and maybe make a little extra cash all at once, you should look at getting a rewards credit card. These cards offer some great incentives for you to use them for everything, so if you haven’t started using rewards cards, now is a great time to start.
Different Types of Rewards Cards
First, there are a lot of different types of rewards credit cards, so you should make sure that you diligently compare credit cards’ offers. The main types of rewards cards are cash back, travel, and points.
Cash Back: Cash back credit cards are the simplest cards because they just give you a portion of your spending back as a rebate – either onto the balance of the card, or as a separate deposit. Some credit cards only offer cash back on certain purchases, or they have a tiered system, with 1% on everything, 2% on gasoline, and so on. Other cards, meanwhile, offer a flat 1.5% cash back on everything you spend, but the money needs to be deposited into an account with the company who sponsors the credit card.
Travel Rewards: There are hundreds of travel rewards credit cards, which offer miles, flights, hotel stays, car rentals, and more. If you are big on travelling, getting a rewards card can literally make you money. However, you need to make sure that you follow the simple rule of using all the same company. For example, get a credit card that gives you miles on the same airline you travel for work, that way you have everything in one place. It doesn’t help to have a travel card if you’re never going to get enough miles with one company to travel.
Point Systems: Finally, there are credit cards that offer points. This was the original credit card reward, where you could redeem your points for stuff – merchandise, shows, giftcards, and more. If you’re going to use a point credit card, make sure that the item you redeem your points for is worth how many points you spend. For example, if you want a $500 item, and it costs 50,000 points, that is the equivalent of 1%, if you earn 1 point per dollar. As such, if you can get a .5% cash back card, the cash back is a better deal that redeeming the points.
The Trick to Make Money
Now that you have the basics of card types down, here is the trick to make money with rewards cards: don’t give the credit card company any money, but still get the rewards. This means paying off your balance in full, so that you don’t pay interest, regardless of your credit cards’ low apr.
Second, don’t even think about paying any type of annual fee with your rewards card. Many of the best cash back rewards cards don’t charge annual fees, so you shouldn’t be paying one for travel or points.
By not giving the credit card company’s any money, you can make money with your rewards credit card.
Would you be a dear and Stumble this article?
We have rewards cards that average a couple hundred bucks back in cash. Since we pay no fees or interest, I’d say we make money. We also have a Target Red card that we get 5% back with at the register. This also ‘makes’ us some money back on things we would buy there anyways.
I like your point about not giving any money to the credit card companies by paying it off every month. What do you think about the Dunn and Bradstreet study that shows people spend 12-18% more by using credit cards? Can you really make money with rewards cards if that’s the case?
“For example, if you want a $500 item, and it costs 50,000 points, that is the equivalent of 1%, if you earn 1 point per dollar. As such, if you can get a .5% cash back card, the cash back is a better deal that redeeming the points.”
Seems to me that the points card gives you double the value, if its return rate is double the cash back card. Was that intended to be written as a “5% cash back” instead of “0.5% cash back”? I definitely agree that determining the value of the points is key to evaluating the relative value of the card. Another strategy is to get cards that offer higher discounts for certain types of services and use those cards only for those services.
The hidden cost is that vendors bump their prices to compensate for the higher fees charged by banks for the reward cards. So, if you are paying cash, you’re actually subsidizing the rewards programs that other people are benefiting from. (By extension, you might not be “making” much from rewards cards, but at least you’re not losing!)