Introduction to Credit Card Rewards Part 1

Cashback CardsYou may have read about travel bloggers who claim they go on first-class flights and stay in awesome hotels for free.  Well I bet they do because I have managed to get many free flights and hotel stays (plus some fees).  It was only after 3 ½ years of using credit that I discovered how I could earn free travel.  However, for part 1 of the series we will look at the simplest strategy, earning cash.

If you have credit card debt, then this is a game you can not afford to play.  Work on paying off your debt with the highest rate first and consider consolidating with one of these services.

Spending cash versus credit

When making a purchase you can pay with cash, debit, or credit assuming you are not using Craigslist.  The benefit to using credit over other means is that the issuer often provides an incentive to using your credit card.  One example would be cashback.  If you are buying a laptop for $600 you could pay cash, or maybe use a 1% cashback card and earn $6 back.  In addition to the instant monetary benefit there are other perks such as:
  • Return protection: credit card will accept a return if the store refuses.
  • Extended warranty: free warranty extension on your product.
  • Price protection: if the price drops within a certain period you can get a check for the difference.

The benefits are pretty nice and worth it if you have the money to pay your bill in full.  A “benefit” of credit is that you don’t need the money now, you can pay over time.  However, let’s say you paid $100 each month on your 19.99% interest rate card.  You would end up spending $638, negating the $6 cashback.

Sample cashback cards

So now that you know about cashback you would like more of it.  This can be achieved by spending more, which is not a good strategy, or finding a card with a higher percent cashback.  One percent is a pretty common amount, though there are cards like the Quicksilver and Freedom Unlimited which offer 1.5% and the Citi Double Cash which gives 2%.  Not everyone can qualify, but the higher the percent the better.
Bonuses
For the examples we had earlier, Quicksilver had a $100 bonus after spending $500, the Freedom  Unlimited had a $150 after $500, and none for the Double Cash.  These bonuses must also go into your calculations.  Based on these numbers you would be better off with the Freedom Unlimited with spending under $30,000 after which you would be better off with the Double Cash.
Fees
Some credit cards have annual fees that you need to factor into the rewards amount.  These three do not.

Sample cashback with bonus categories cards

So now we understand cashback, but what about cards with bonus categories?  There are two types, ones with bonus categories and the other with rotating bonus categories.
For the first an example is the Amex Blue Cash Preferred ($75 annual fee) which offers 1% with 6% on groceries and 3% on gas, however the extra bonus is limited to $6,000 of spending annually.
For the rotating bonus categories there is the Chase Freedom and Discover it card.  Both have 1% with 5% rotating quarterly bonuses up to $1,500 in spending.  These could be department stores, groceries, restaurants, Amazon, or others – it changes quarterly.  You may remember how my Discover card made me a Sears millionaire and I really enjoy their shopping portal.  My wife has the Freedom and that has been nice when the category is Amazon.

Can I get both?

You can get a bunch of credit cards, in fact I have 9 currently open.  However, you want to be strategic about your acquisitions.   You could get two cards to earn the sign up bonuses, but later there could be an even bigger bonus which you want be get declined because you have too much new credit.  I tend to get a card every four months so I can rake in bonuses.  There are also minimum spending requirement to keep in mind to earn the bonuses; if you apply for too many then it could get hard to spend the amounts needed.  Currently there are rules about card limits such as Chase only allows you to get a card if you have had fewer than 5 applications within the last 24 months.  Citi will only allow a bonus if you haven’t open it within a certain period.  Amex only allows one bonus once per card.  So you want to make sure you are not overdoing your applications until you do your research.

Conclusion

You now know the basics of cashback cards.  This is really all there is to know about cashback cards.  If you only care about cash then you can go get the card(s) you want.  If you choose the Discover it card I’d appreciate if you use my link.  If you are interested in getting free travel, stay tuned for the next part.  Finally, do not carry a balance on your card as this will hurt more than any rewards can help.

Continue reading in Part 2

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