Do you enjoy throwing money down the drain? I think we all know the answer, but if you pay off your credit card in full each month and it’s not a rewards credit card, you are almost certainly missing a serious money-making trick.
Right now, some banks are falling over themselves to throw money at new customers to take out a rewards credit card with massive intro bonuses on top of regular ongoing rewards.
So why continue to accept a card that is giving you nothing back? I made a clarion call earlier this week for savers to take advantage of rising rates and switch, and now I’m making a similar call to credit card holders, too.
Chase’s new $1,000 bonus
The recent highlight is the Chase Sapphire Preferred® Card, which is paying newbies a massive 80,000 points for those who spend $4,000 in the first three months, in exchange for a $95 fee.
Why a reward credit card makes sense
Recent figures released by American Bankers’ Association show just over half of Americans with a credit card carry a balance over every month, which means they aren’t paying it off in full and therefore are paying interest.
If you cannot pay off a credit card in full, then a reward credit card is not right for you. You are better off with a balance transfer credit card so you move it from a high-interest card to one at 0% interest. There’s little point in a rewards credit card in that scenario as over time the interest will dwarf any gain from the reward.
Yet if you can or do pay off your card in full each month then a rewards credit card is a no-brainer as you are effectively being paid to spend. You can choose between a cashback credit card that pays money into your account or one that gives you points or vouchers.
I should add that a rewards card isn’t an excuse to spend on stuff you can’t afford or don’t need just to gain the reward, otherwise it’s a false economy. Instead, just put all your normal spending on it, which is easier these days with fewer and fewer places accepting cash.
I’ve been using rewards credit cards for years, mainly to amass airline miles. I put all my normal spending on one, and I’ve chopped and changed to snag intro bonuses, as has my wife, which means we’ve managed to travel across the world in business or first class, paying less in cash each time than we would have for an economy ticket.
How credit cards work
It’s this simple: you spend on the card, pay it off in full each month so there is no interest, and you get your reward usually monthly or annually depending on the conditions. It’s free money if you do it right.
I should add that credit cards are like fire. They’re a great tool if used correctly, but they can burn you if you use them badly. A bad use of a rewards card would be to pay the fee and not spend, meaning you get nothing back, to buy stuff you cannot afford, to not to pay it off in full, or to miss payments, which means interest, possible charges and a hit to your credit score.
