How to max out credit card rewards
Posted
Jul 29 2008, 07:28 AM
by
Karen Datko
Rating:
This post comes from partner blog Blueprint for Financial Prosperity.
With the prices of food and gas where they are, everyone's looking for an edge. For more and more people, myself included, that edge is in maximizing what you can get out of credit card cash-back reward programs.
Credit card companies charge vendors a hefty percentage to process credit card transactions (AMEX and Discover charge the most; that's why they often have the best cash-back programs), so doesn't it make sense that they pass along some of that to you? Of course it does.
Here are eight tips I use to ensure I get the most cash back from credit cards:
Know your spending. Every card is tailored to a slightly different person and a slightly different spending profile. They're looking to get a slot in your wallet or purse, and so they sometimes offer strange groups of eligible cash-back categories in order to get there. The best way to figure out which card is best for you is to check your budget and see where you're spending.
Unfortunately, gone are the days when supermarket purchases got 5% cash back, but purchases at gas stations and on auto-maintenance offers are still around. For me, the answer is combining Costco's cheaper gas with either the Costco TrueEarnings card, which offers 1% cash back, or the American Express SimplyCash business card, which offers 3% cash back. You can get Costco gas without a membership in some areas.
Liz Pulliam Weston of MSN Money recently listed the cards she considered the best cash-back reward credit cards, including Blue Cash from American Express, the Chase Freedom Visa card and Discover Motiva.
Skip stuff; get cash. I always opt for cash back because it makes the math easier and you never have loss in the conversion. I know that some people like to get stuff, but oftentimes, if you check out the catalogs, the conversion of points to products is not in your benefit.
Let's take the simplest example of a gift card on the Citi ThankYou network. Each ThankYou reward point is worth about a penny, meaning 100 points equals $1. If you were to trade in your points for a $5 Barnes & Noble gift card, it would cost you 1,000 points -- or $10 worth of points. As you get to larger gift cards, the exchange rate is more favorable ($10 gift cards cost only $15 in points) and it starts to become even when you reach the $25 gift card level, depending on the vendor. The loss is most obvious with gift cards, but it happens with stuff too because you're often paying retail value in points.
Don't get a zillion cards. For instance, I didn't get the Amex SimplyCash or the Home Advantage card because I wouldn't use them much. From time to time I do spend money at Home Depot or Lowes, as I will soon do to repair drywall damage in the next week or so. But it doesn't make sense to load your wallet or purse with a ton of plastic you don't use regularly.
First, applying for a lot of credit cards will damage your credit score for a little bit. Second, you risk losing track of them if you don't use them regularly. Maybe you forget to pay a bill, or one of the cards falls out when you're running around. Losing track can wipe away an entire year's cash back in one unfortunate incident. Finally, who wants to carry around all that extra weight anyway?
Have backup. You'll want at least one card that will give you 1.2% cash back on everything (for the first year, there's a 20% bonus on top of the normal 1% cash-back offer). You can use it if you forget whether your other cards will give you cash back on a purchase. Most cards will have at least 1% cash back, so finding one will be a cinch. The Citi CashReturns card is our backup 1.2% card because there is no limit, which is crucial, and they send a check automatically once you reach the $50 threshold. The only way you can do better is if you can find a card that will deduct the cash back right off the credit card statement (the American Express SimplyCash business card will do this) or find one with a higher cash back, which I haven't seen yet.
Beware low limits. The Discover Open Road card offers 5% cash back. Ordinarily that would be a screaming hot deal, but read the fine print and you'll see: "Earn a full 5% Cashback Bonus on your first $100 in combined gas and auto maintenance purchases each billing period." That amount of spending won't even fill the tank for some people. The 5% looks good at first glance but really isn't that great.
Write down cash-back percentages. Get some Scotch tape and write down all the categories and the percentage cash back on the face of the card. Some cards offer rewards in categories for which you don't normally spend. By writing them down, you can flip through your cards as you wait in line so you can maximize your rewards.
This will help for cards whose cash-back program changes every quarter. There's no way you to keep track of what it covers this month because it changes four times a year. Write it down and change it as the program changes.
Always pay in full. Never carry a balance. Any interest you pay will completely erase your reward.
Stop spending. What? What kind of tip is this? It's actually the best tip. You can't stop buying some things, like food and gas, but for others, you might want to consider putting off the purchase for a few days or weeks, or months until the economic climate recovers a little. Skip that movie once a week or cook dinner more often. Those little steps will save you more money than a few percentage points off your bill.
Do you have any tips or tricks to maximize your cash back? If so, please share.
Other articles of interest at Blueprint for Financial Prosperity:
Beware false indicators of bank health
Suze Orman's Will & Trust Kit review
5 reasons to start your own garden
