Guide to Credit Cards: How To Maximize Your Credit Card Rewards
If you've followed the steps in this Guide until now, here's where you are. You've paid off your credit card debt. You've set up a direct debit so your full monthly credit card balance is automatically withdrawn from your checking account. And you no longer allow credit cards to lull you into overspending. Now you're ready to maximise the rewards you get from credit cards.
Credit cards offer a dazzling array of rewards. You can find credit cards that give you air miles, credit cards that award hotel stays, event tickets, cheap gas, or discounts at your favorite stores; and credit cards that reward you with plain cash.
Here's the wrong way to think about these rewards: choose the credit card because you're excited by the prospect of a free gift. Gifts are most exciting when you otherwise wouldn't have bought them yourself. "A free first class air ticket? That's great, because I never would have paid for a first class ticket myself, so this is a real treat." The mistake here is the failure to understand that the rewards you choose have an opportunity cost: you could have chosen cash, so by taking first class air tickets instead you are effectively choosing to buy something you otherwise wouldn't buy.
Here's the right way to think about these rewards: view them as ways to save money on purchases you would make anyway. Look at it this way: some credit cards offer 5% cash-back on purchases from supermarkets, gas stations and drugstores; store credit cards often give you a 10% discount on your first day of shopping; and one credit card at one point offered 5% cash-back on everything for 6 months. So if you choose your credit cards wisely, you could cut your total family expenditure by up to 5%. That's huge. Think what you could do with 5% of your total family annual expenditure!
The key to great credit card selection is to understand how much money you spend and what you spend it on. You can then choose the cards that provide the maximum rewards and discounts on those purchases. There are three factors to consider:
1. How much do you expect to charge to your credit card during the next 12 months? This matters for two reasons. First, some credit cards have tiered reward levels. You get little for, say, the first $3,000 that you charge, but a lot if you charge over $10,000. That's great if you're a big spender, but useless if you only plan to charge $2,000 per year. Second, many credit cards grant rewards in lumps. Once you spend $2,500, a cash-back card may send you a check for $25. But if you only plan to charge $1,000 to your credit card per year, you'll wait a long time for that bonus.
2. What spending categories do you expect to charge most to your credit card? Many credit cards offer higher rewards for certain types of purchase. Some cards, for example, offer higher levels of rewards or cash-back for spending on gas and groceries. If these are the main categories you plan to charge to your credit card, you should choose a card that pays higher reward levels for those items.
3. Are there specific items or types of items that you wish to purchase that are offered as rewards? If you know that your next car will be a GM model, consider a reward card that will give you a discount for GM cars. If you regularly travel business class, consider a credit card that rewards you with air miles. If you live near a major airline hub, consider getting a card that provides higher rewards for that particular airline. If you drink Starbucks coffee every day, then consider a credit card that gives you free Starbucks coffee.
Once you've chosen your card (or cards), there's one other step to maximizing the rewards you earn:
Charge as much as you can to your credit card. This does not mean that you should go on a spending binge. Rather, you should try to charge to your credit card everything that you would have purchased anyway. Start with the largest items: many companies allow you to use a credit card to pay for car and home insurance. (Make sure you don't incur an extra fee to pay by credit card, thought.) And have all your regular bills charged automatically to your credit card, such as wireless and wireline phone service, and cable or satellite TV.
In the next few sections we'll take a look at particular types of reward credit cards: air miles, cash-back and store credit cards.
Comments
I often fly with Delta Airlines and a special credit card fro frequent flyers ( www.requestcredit.com/... ) is essential to me. I can make my usual business trips and get some rewards! I think credit cards with rewards are of great help to us all, just choose a proper one for you and you will really enjoy it!