Make Your Money Work For You: Guide To Credit Card Rewards

Credit card rewards are very popular.

They allow your money to work for you by giving you a certain percent back on every purchase.

While this usually is only between 1-5% back, this can add up to thousands a year.

Why not let your money work for you?

This only works if you pay your balance in full each month though.

Otherwise, the interest you pay would negate any rewards.

I will explain how to do this at the end of the post in more detail.

For now, just know to put your normal expenses that you pay cash for like groceries, gas, cable, etc. on a credit card.

Then, pay it off.

If you do not have the cash for the item , you do not make the purchase.

Credit card rewards allow you to get something back for every dollar you spend, and make your money work for you again.

Most people are familiar with credit card rewards, but do not use them effectively.

Here is a guide for you to get everything from credit card rewards.

What are credit card rewards?

Again, credit card rewards give you a percent back on your normal spending, usually 1-5%.

This allows you to get something back on every purchase.

This may seem small, but with multiple cards, this can easily be at least $1000 back a year.

The average credit card like the Chase Freedom gives $300-$400 back a year.

Why You Need A High Credit Score?

To qualify for reward credit cards, you need a high credit score (usually around 720 FICO).

Some cards accept a score as low as 680 FICO, which is still the good credit range.

If you have fair or poor credit, you will need to improve your credit score.

No worries.

There are ways you can improve your credit score.

I have seen it all.

In today’s times, your credit score is your reputation, so you will need to have excellent credit for more things than a credit card.

If you have fair or bad credit, make sure to improve your credit score.

Why do credit card companies give you free money?

Credit card companies, like all businesses, have to compete for your business.

They make money in two ways:

• transaction fees
• interest

1. Transaction fees

Credit card companies charge businesses every time you swipe your credit card.

Usually, this is around 3%.

When you are not using their credit card or using other payment methods like a debit card, credit card companies are not profiting.

So, every time you swipe their credit card, the credit card company makes money.

2. Interest

Of course, credit card companies make a lot of interest off people carrying a balance.

If you are reading this post and seeking to make your money work for you, you will not pay this.

If you have other credit cards with balances and want a reward credit card, make sure to not carry a balance on your reward credit cards.

If you have credit cards, (even if you get a reward credit card and carry no balance), I would suggest you pay off your credit cards that you have balances on.

Credit card debt is costing you interest and making banks rich.

Paying off debt is the key to financial freedom.

Types Of Credit Card Rewards

There are generally three types of credit card rewards:

• cash back
• points
• miles

Points and miles credit cards are travel currencies, so that means there are only two types of reward credit cards: cash and travel cards.

Cash may look king, but I find that travel credit cards give you more bang for your buck.

So, if you like travel, you may actually want to lean toward travel credit cards.

My other blog will show you how to use travel reward credit cards.

Check it out at Travel Points 101.

Types of Rewards

Credit card companies will generally offer two reward structures on both cash back and travel credit cards:

• fixed
• variable

1. Fixed

Fixed reward credit cards offer one rate for all purchases.

These are great for non-variable categories that can’t be maximized on variable credit cards (next section).

For instance, if you spend a lot on dining out and groceries, you will want a variable credit card that gives you a higher percent back in those areas.

Variable credit cards, described in the next section, usually only give 1% back on all other categories except bonus categories.

Fixed credit cards are great for spending that are not covered by bonus categories on variable credit cards.

Great fixed value credit cards include:

• Chase Freedom Unlimited, 1.5 % on all purchases
• Citi Double Cash, 2% back on all purchases

Fixed reward credit cards can be cash back or travel credit cards.

A good example of a fixed credit card for travel is the Capital One Venture.

It gives 2% back on all purchases.

A good example of a fixed cash back card is the Citi Double Cash credit card listed earlier at 2% on all purchases.

2. Variable reward credit cards

Variable reward credit cards offer more than one flat rate.

They have bonus categories that are higher in categories like groceries, gas, dining out, travel, etc.

Variable credit cards will give you a higher percent back because they will have select bonus categories at a higher rate.

Variable credit card bonus categories include:

• groceries
• dining out
• gas
• cable/internet/phone
• business advertising (if you have a business)

Variable credit cards, whether cash or travel, are the first credit cards you want to get.

Why?

Fixed credit cards, described earlier only get you 1-2% back.

Variable credit cards usually offer 3-6% back in bonus categories.

You never want to get 1-2% back when you can get 3-6% back.

Most people will spend in categories like groceries, gas, or dining out.

So, your first reward credit card should be a card that covers these areas.

Variable cards can be cash back or travel like fixed credit cards.

You will have to decide between cash back or travel again.

Most people lean toward one or the other.

Again, if you love travel, those credit cards tend to get you more return on your spending.

You can have both cash back and travel credit cards again.

Great cash back cards for groceries include:

• Amex Blue Cash Preferred

Great travel cards for groceries:

• American Express Everyday Preferred
• American Express Gold

Why The Sign Up Bonus Is So Important

Sign up bonuses are the easiest way to get quick cash or a free trip.

They give you a quick, large amount of cash or points.

Again, you will either choose a cash back or a travel credit card.

They do require spending a certain amount of money to meet the bonus.

For instance, The American Express Blue Cash Preferred card will award $300 for spending $1000 in the first three months.

That was a cashback card.

The Chase Sapphire Preferred awards you 60,000 points (valued at $750) for spending $4000 in the first three months.

How do you meet this minimum spending requirement that is usually between $500-$4500 on various credit cards (although some cards want you to spend as much as $15,000)?

Let’s look at an example.

The popular Chase Sapphire Preferred requires spending $4000 in 3 months.

That may look like a lot, but it is actually $1333 a month.

If you spend $500 a month on groceries, $200 on gas, $200 on dining out, that is $900 a month of the $1300.

You can add cable for $200 and other expenses you can put on a credit card.

As you can see, it is easy to meet your $1333 a month.

Do not get a credit card with a sign up bonus until you are sure you can earn the bonus.

Many people like to time their large purchases around a sign up bonus.

Remember, reward credit cards are only for things you would pay cash for, so if you make a large purchase make sure you have the cash.

Why Get A Credit Card With A Fee

It would seem that a credit card with an annual fee would never make sense.

For example, mid-range hotel credit cards tend to charge a $95 fee.

They usually have a no fee equivalent too.

For instance, the Marriott Bold credit card charges no fee.

The Marriott Bonvoy Boundless card charges $95.

Why would you pay $95 instead of getting the free version of the credit card?

The $95 Marriott Bonvoy card comes with a free annual certificate at hotels that are $200+ after taxes (Marriott category 5 hotels).

So, for a $95 fee, you are getting a $200+ hotel.

If you stay at Marriott hotels at least once a year and will be paying for a Marriott hotel, this fee will cover itself.

You would be hard pressed to find a Marriott hotel for under $95 after taxes (the fee of the card).

So for the $95 fee, you got a hotel you were going to pay for anyway for $95 after taxes.

Next, since this is a $200 free hotel, you got your $200 hotel for $95.

Of course, if you would not stay at a Marriott hotel anyway, this would not be your card.

Another example is the American Express Gold credit card.

The card has a $250 fee.

It comes with $100 airline credit and a $120 dining credit.

If you used both of those that is $220 knocked off the card, bringing your annual fee to $30 a year with better rewards than cards that charge a $95 fee.

So, you see credit cards with fees can sometimes pay for the fee and even beat their no fee counterparts.

You must always do the math.

Make Sure Your Rewards Do Not Expire

Some cards have points that expire.

Make sure to know this ahead of time.

This is particularly true with hotel and airline currencies.

How To Choose A Reward Credit Card

1. Look at your spending

Do you spend a lot on dining out?

Groceries?

Gas?

Then , you will need to pick a variable credit card that gives the most for those categories and maybe get a fixed credit card for all other purchases.

2. Decide if you want a cash back or a travel credit card

Again, it would seem like cash is king again.

Travel credit cards tend to be worth more than the one cent per dollar that cash back credit cards are worth.

A $600 bonus on a cash back credit card (if you could find one that high) is just $600 on a travel card it is worth $750.

3. Decide if you want to pay a fee

Again, cards with fees can pay for themselves.

How much can rewards credit cards make you?

On average, a good credit card can earn you $300-$400 a year.

For instance, the Chase Freedom and Discover credit cards earn an average of $350 per year.

Again, travel credit cards earn even more.

So, if you had a couple of credit cards, you can easily earn over a thousand a year.

Many people who are strategic and put more time into credit card rewards earn more than that, especially with travel credit cards.

This does take extra effort though.

How To Never Carry A Balance On A Reward Card?

Reward credit cards only work if you do not carry a balance and pay your credit card in full each month.

Here are things you can do to never carry a balance.

1. Put your normal expenses on the credit card

Some normal expenses that most people have that can be put on a credit card are:

• Groceries
• Dining out
• Gas
• Cell phone, cable, and internet
• Travel
• Car insurance

2. As soon as the charge hits your credit card, pay it off

When you see the charge on your credit card (usually within a day or so), pay it off.

Watch out for closing dates.

If you card goes to a closing date, your utilization will be affected.

For instance, if you put $500 for groceries on your card and pay it off before your closing date (with no other purchases), you would have 0% utilization.

If it stayed on the card after the closing date and the card had a $1000 limit, it would be a 50% utilization, which is bad.

You want to always have a utilization rate below 30% ( even better is a utilization rate below 10%).

3. Only buy items you can pay cash with

Again, reward credit cards only work if you pay your balance in full each month.

You do this by only buying items you have cash for.

How To Maximize Credit Card Rewards

The ideal scenario is to maximize every category you spend money on.

This would require more than one reward card but would make you the most money.

For instance, someone who chooses travel rewards and spends heavily on groceries, gas, and dining out, might have the following credit cards:

• American Express Gold for groceries and dining out
• Chase Sapphire Preferred for travel
• Chase Freedom Unlimited for all other categories

Again, the average person would get $300- $400 a year on the average reward credit card .

So, a person who maximizes would get much more than that.

If you are organized and have time, maximizing bonus categories is always the best way.

Some people just want one card and can get $300-$400 back by having a card like the Discover, Chase Freedom, or Citi Double Cash again.

Keep in mind that the Chase Freedom cards are better used as travel rewards when combined with Ultimate Reward cards like the Chase Sapphire Preferred.

Again, if you have the inclination, maximizing categories is always more profitable.

It is actually easier than it looks.

The average person would just get one card and get $300-400 a year again.

I don’t think Adding Pennies readers are average.

You read Adding Pennies to put more money in your pocket.

Maximizing cards can turn into thousands a year.

Tips To Use Credit Card Rewards

• Never carry a balance
• Only buy purchases that you have the cash for
• Make sure you can earn the sign up bonus
• Watch out for expiring currencies, especially with hotel points and airlines miles
• Be organized
• Know whether you want a cash back card or a travel card
• Do the math for cards that charge a feee

Summary

Credit card rewards make your money work for you.

For each purchase you put on the card, you are getting something in return, usually 1-5%.

This may seem small, but an average card can earn $300-$400 a year.

If you have more than one credit card, that can easily be over a thousand a year.

These are for purchases you would make anyway.

Travel rewards tend to earn more than that when they can be redeemed for valuable hotels or free flights.

Travel credit cards are where people are earning thousands.

Again, if you like travel, that is the better deal.

For purchases you would make anyway and pay cash for like gas and groceries, why not get something back?

I will be adding reward credit cards to the Beginner’s Guide because they put money back in your pocket.

The Beginner’s Guide is about getting you started putting money in your pocket.

Remember, reward credit cards only work if you don’t carry a balance and pay your card in full each month.

I think this is easy if you are reading Adding Pennies, but if you are tempted to overspend then maybe this is not for you.

Again, you must have a high credit score too.

Reward credit cards are pretty popular now again.

Not everyone knows how to get the most out of them though.

That is why I created this guide.

I hope it was helpful.

Do you have a reward credit card?

Does it earn you a lot of money or free travel?

Which card(s) do you have?