Are You Maximizing Your Credit Card Rewards Program?
I always talk about getting out of debt on this site and honestly, it probably could be the most single important financial decision you can make for you and your family. Not owing anything to anyone is a great feeling and enables you to make choices in your life that you otherwise would not be able to make. Once you are out of debt, your options to actually make money off your credit cards are just beginning! So this post is for those of you who are already out of credit card debt and are looking for a way to maximize your rewards card earnings so they can pay you, instead of you paying them.
There are a ton of different credit cards available to the average consumer, and the smart ones choose cards that either give them airline miles, actual cash back, or discounts on things that they do frequently. We have chosen to maximize the rewards on two of our cards; our American Airlines mileage card from Citibank and our Dividends card, also from Citibank. Although we have other credit cards (namely my business AE card), these are the only 2 we really charge anything on…the others are just around because I have had them since college and I don’t want to remove them from my credit history.
The AA card is used to pay all of our recurring monthly bills - Netflix, Tivo, electric bill, gas bill, Vonage bill, the cable bill, etc. On average, these things cost us about $300 per month…and every dime of that is charged to our AA credit card. Over the course of a year, that earns us at least 3,600 miles on American Airlines for things that we would have been spending money on anyway! These are things that we could be paying for out of our checking account, but why not get something back for paying them? We also charge every dollar of any travel we do - whether it is rental car, airplane, or our upcoming trip by train - so that adds up to a significant amount as well.
As for the dividends card, we earn 5% back on any purchases at the grocery store or gas stations, so we use the card for any purchases at these type of stores. We also use this card for any online purchases, just to pad the dividend dollar with an extra 1% on these type of purchases. Since we spend about $400 a month on groceries and about $150 on gas alone, that pays us back 5% of $550 every month - or $27.50 for those of you who love math. If you look at it like that, we get an automatic 5% discount on these purchases just by using the card!
The key to paying your bills by credit card is to make sure you can pay off the bill in full when it comes each month. For some people, it is easier to pay each bill as you get it - and I understand that, as I used to be like that as well. But the rewards are too much to give up by doing that, so we started having everything paid automatically. The other upside to doing it this way is that everything is always paid on time…there are no more late payments, lost envelopes, or worrying about a bill because you went away for the weekend.
So if you are out of debt and looking for a way to have the credit card companies pay you for using their cards, be sure you are taking full advantage of any rewards that your card(s) may offer. If you are not using a rewards card but you have decent credit, you might be missing out on a lot of rewards and you should sign up for one and start using it. It’s a great feeling earning something from your credit cards!
Maximizing the reward benefits on your credit card is easy. Remember to pay off your monthly credit card balance every month and use the card to maximize the specific benefit that the card offers. So if it’s airline miles, discounts on items from merchants that you frequently buy from or simply cash back rebates, take advantage of that rewards card offer by using it to your advantage.
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boomie | Nov 8, 2007 | Reply
Years ago:
we worked to earn money, to save and then spend.
Now:
we spend money to earn money, to save.
If we stopped there, it would be fine but unfortunately we keep the chain going and we spend.
Spending money to ‘earn’ more money to spend is baffling. Do you agree?
Subconsciously, when you know you are ‘earning’ points or rewards, statistics show that you spend up to 14% more on a credit card than if you had used cash for the purchase.
Wouldn’t using cash for all purchases (or debt/check cards) then force you to spend less, thus saving the 5% (and more)?
I don’t know. Maybe I’m old fashioned. I just don’t like the pitfalls of credit cards.
Just my 2 cents.
David | Nov 8, 2007 | Reply
Nothing I listed that we spend money on is stuff we buy just to earn rewards - in fact, it’s the opposite because these are things we otherwise would be writing checks or paying cash for, but instead we earn rewards. I would never advocate spending money to earn money like that!
Aimee | Nov 8, 2007 | Reply
We try to use our rewards cards for what we can pay off (recurring monthly bills). But, we found that if we were going to use it for utilities and cable there would be a $4 service charge on the end of the company. Obviously for those we have to use cash so we don’t have to pay extra.
But, I think it’s great to use rewards programs to your full advantage for things you already buy anyway. As long as you know the money is there to pay it off right away, go for it!
credit cards for business | Nov 8, 2007 | Reply
Thanks for sharing this post on your blog about Credit Card Rewards Program. This could be very useful article, especially for those who have credit cards and planning to have it. Anyways, great post.
The Next Corner | Nov 10, 2007 | Reply
Today in the New York Times, in the business section: Big Fees for little credit.
An interesting article about Fee-Harvesting Cards. What do you think about this story:
“A typical card will advertise a credit limit of $250, but that is reduced by a $50 membership fee, $119 acceptance fee and $6 monthly participation fee, leaving the consumer with only $75 of actual credit. And if the consumer goes over that, they are charged a $29 overlimit fee!”
Even more important to check out the policies of your credit card…
Money Blue Book | Nov 11, 2007 | Reply
I believe Citibank discontinued the Dividend Card’s original lucrative cash back program a year ago and reduced it from 5% to 2%.
I think people should be aware that the 5% cash back is only for 6 months. Afterwards, it plummets down to 2%. -Raymond
David | Nov 11, 2007 | Reply
I heard that too, but I am still getting 5%.