If you listen to personal finance guru Dave Ramsey, credit cards are something to avoid at all costs. And that is a good rule of thumb for overspenders who cannot control themselves. But, if you can responsibly pay off your spending every month without incurring interest, credit cards are incredibly valuable. You can use credit card rewards several different ways to your benefit and maximize everyday spending. Let’s take a look at how you can maximize your credit card rewards.
7 Major Tips for Maximizing Your Credit Card Rewards
Here are the top tips to keep in mind if you have a goal to truly get the most value out of your credit card rewards:
1. Sign Up for New Cards With Welcome Bonuses
Credit cards often offer welcome bonuses for new users. You’ll see promotions for earning thousands of extra points or getting a higher cashback percentage for the first few months. These promotions often come with a caveat that you have to spend a minimum amount in the first three, six, or 12 months to receive the full offer.
So, if you’re going to sign up for a new credit card, ensure you do so when a promotion is running. And make sure you meet the minimum spend so you can get the entire offer. One way to approach this is if you know you have some big purchases coming up soon (such as your annual car insurance payment or a home renovation project), that’s the time to look for a new card with an exciting promotion.
2. Keep Spending Categories in Mind
Credit cards typically have spending categories that earn different levels of points or cashback. For example, you might see a cashback card that offers:
- 2% on dining out and subscriptions
- 1% on gas and groceries
- 0.5% on everything else
Or you might see a points-based travel card that offers:
- 5x the points on restaurants and gas
- 2x the points on groceries, shopping, and subscriptions
- 1x the points on everything else
Keep these spending categories in mind, especially if you have more than one card. If you had both cards listed above, you should put all your gas on the travel card but all your subscriptions on the cashback card.
Also, note the limitations on earning potential. Often, credit cards have a limit on how much for each category you can earn. For example, the cashback card listed above might state in the terms and conditions that “Card owners can only earn cashback on the first $75,000 annually. All transactions after this amount won’t be eligible for cashback until your card’s annual date restarts.” If so, you’ll want to switch your spending to another card once you hit that spending limit.
3. Evaluate Your Needs Annually: Travel, Points, or Cashback?
There are three main categories of credit card rewards: points for travel, points for other purchases, and cashback. Before you start another year of spending on your card, stop and ask yourself what your biggest priorities are for the year. If you have a big trip you want to book in the next several months to a year, prioritize a travel card that can help you save money on this future trip.
Alternatively, if you don’t have travel plans, you might want to choose a card that offers cashback so you can use that money as you see fit.
Generally speaking, travel and cashback rewards are the best bang for your buck. While redeeming credit card reward points for gift cards or items can seem tempting, they’re the least beneficial in a dollar-for-dollar comparison.
4. Use All Your Card Perks
Your card can do much more for you than just getting points or cashback. There are several different credit cards that come with additional perks, such as:
- Travel Insurance
- Insurance for lost or delayed luggage
- Access to airport lounges
- Discounts on car rentals, hotel stays, and more
Ensure you know all the benefits available to them so you can use them all and save yourself some unnecessary expenses.
5. Consider the Annual Fee
The credit cards that offer the best rewards come with an annual fee. Depending on the card, this fee can range from $50 to more than $600 for luxury cards. It’s important to analyze your rewards earning potential versus the fee. After all, if you pay a $100 fee but only earn $125 worth of points in the year, that fee isn’t worth it. But if the $100 fee can double or triple your points or cashback, it might be a good choice for you.
You can also choose a card without an annual fee. Just know that these cards usually come with a decreased opportunity for rewards. Still, for those who don’t spend a lot on their credit cards, this choice can allow you to utilize the credit card rewards in a smart way.
6. Take Advantage of Promotions
Some credit cards run promotions throughout the year where you can:
- Earn a higher percentage of cashback
- Buy more points at a discount
- Redeem your points at more than they’re worth
Make sure you’re signed up for emails so you can know when these promotions happen. Eventually, you might even know when to expect these promotions (such as every March for Spring Break and every November for Black Friday). Then, you can wait to redeem your points until the promotion runs to get the most value.
7. Never Pay Interest
Speaking of fees, make sure you never carry a balance on your credit card. Credit cards have exorbitant interest rates. In 2023, the average credit card APR in the US was 22.8%. The Consumer Financial Protection Bureau estimates that from 2018 to 2020, Americans incurred $120 billion annually in credit card interest and fees. Don’t let yourself contribute to this shocking statistic.
Avoid putting expenses on your credit card you can’t afford to pay off just for the rewards incentive. Your rewards are worth much less than the interest rate you’re charged, so this is simply a bad deal. Instead, save up for your purchases first so your credit card rewards are stress-free and interest-free.
Make the Most of Your Spending
Credit cards can be an amazing tool if you know how to use them right. As long as you’re financially responsible, you can walk away better for having them with cash in your pocket or your next vacation paid for.
You might also be interested in: 9 Credit Card Trends: The World of Plastic
