I am going to go against standard financial advice with this post, by suggesting something that may make you think I’m crazy: you can make money from credit cards.
Standard financial wisdom is that you should have one credit card for emergencies, and there is no need to have any beyond that. This wisdom is likely good advice for most Americans, given the exorbitant amount of credit card debt.
However, in this article, I want to tell how you can actually make money from credit cards, if you are responsible. Since I first got a credit card back in 2002, I have made over $5000 in rewards, and paid $0 in interest. So how is it that when millions of Americans are paying a lot of money to the credit card companies, I am making money from them?
Step One: Pay The Card Off Each Month And Avoid All Fees
In order to make money from credit cards you have to pay no interest, which means you must pay your balance in full each month during the grace period. The minute you pay any interest you aren’t going to ever make money, or at least not much, from the card companies. So, the first step is that you must have zero credit card debt and keep it that way. This is key. You must be responsible.
If you are one of the millions of people who own a credit card and use it as “free money,” you won’t be making money, but rather paying exorbitant sums of money to the credit card companies in the form of high interest payments. Or, you’ll end up spending more money on things you don’t need.
Also, pay on time and avoid any fees, like going over your credit limit or paying an annual fee.
Step Two: Sign Up For Reward Cards
So, you’re responsible? Good. The next step is to start collecting reward credit cards. You must have reasonably good credit to get most of these cards. Some require excellent credit.
Start by getting yourself a good 1.5% or 2% back credit card. You will use these cards for purchases that don’t get you greater rewards from other cards (see below). The following cards fit that bill:
Capital One’s Quicksilver – This gets 1.5% back everywhere.
Citi Double Cash – This gets basically 2% back (1% back at purchase, 2% back when you pay it off).
After that, get cards that offer rewards in various categories. Some cards give you money back in fixed categories all year. Others have rotating categories, depending on the quarter. So some of the rewards listed below vary depending on the quarter. I have noted them. Check the credit card website to see which reward is active during which quarter. Beside each card I list when I use them.
Chase Freedom – 5% back on gas, grocery, restaurants, and wholesale clubs (varies by quarter).
Discover It – 5% back on gas, home improvement, restaurants, Amazon.com, and more (varies by quarter).
US Bank Cash Plus – 5% back in two chosen categories (choices include fast food, cell phone bills, sporting good stores, and more), 2% back on one additional chosen category (restaurants, gas, and grocery).
Chase Amazon.Com Card – 3% back on Amazon.com
Amazon.com Prime Card – 5% back, and you must be a prime member or you won’t get 5% back.
Step Three: Put It All Together
So here is how you can put all of this together. Right now (August 2016) below I list the following credit card reward categories:
Chase Freedom – restaurants
Discover – Amazon.com and home improvement
Cash Plus – Cell phone and Department stores (5%) and Grocery (2%)
So, during this quarter, I would use the above cards for each category, and everything else I would use my Quicksilver or Double Cash card. For other quarters, I would change up my Cash Plus categories, likely choosing Fast Food as a 5% category instead of department stores (since I don’t shop at those stores much). Also, I would use my Amazon.com card in quarters when Discover isn’t giving 5%.
You need to make sure to change categories based on the rotating categories and your needs.
There are other reward cards that may meet your other needs, like airline miles cards. The above cards are all cash back and meet my purchasing and reward needs.
I suggest keeping a card in your wallet or purse that lists each category for the month, to keep things straight. Also, most of the rotating category cards require sign-up each quarter to get the quarterly rewards. Remember to sign up each quarter or you won’t get the rewards.