Do you hate credit cards? Yes. What about Free Money? No.
I can’t tell you how many times I’ve heard people say they hate credit cards. What they really mean is they hate the behavior they’ve had in the past using them. But what about the reward programs some of them carry? If you are disciplined in using some of these card’s, you can actually make some extra money just by paying them off every month and taking advantage of the reward benefits.
One of many things I analyze when helping my clients are their spending habits. This process allows me to uncover otherwise missed opportunities. One often overlooked opportunity involves credit cards. There are different types of credit cards with different benefits. For ex. there are lots of cash reward cards that pay you 2-3 percent cash back every time you use them. Let’s go through a quick example. Assume you have access to a card that gets 3% cash back for gas, 2% for groceries, 1% for everything else. Let’s say every month you spend $300 in gas, $700 in groceries, and $1,000 in everything else (restaurants, shopping, etc.).
Gas: $300 x 12= $3,600 ($3,600 x 3% = $108)
Groceries: $700 x 12= $8,400 ($8,400 x 2% = $168)
Everything Else: $1,000 x 12= $12,000 ($12,000 x 1%= $120)
First of all, this was a quick simple calculation and its worth noting that every card is different and there might be limitations or maximum reward amounts. Make sure you understand how the program works before opening an account. Also make sure you read the credit card companies disclosure to understand it’s costs, fees, and any limitations that might affect you.
That being said, in this example you would get $396 cash back every year just for using the card to pay your everyday purchases. Things you have to purchase anyway like gas and groceries. Why not get paid to purchase things you need? There are online calculators that give you an idea of your cash back opportunity by plugging in your individual spending habits. It’s also worth noting that if you plan on having a balance on your credit card you might not benefit as much if you’re going to pay a high interest rate on the balance.
Remember this was just an example and the actual reward will depend on various factors one of them your actual spending habits. Using this extra cash will go a long way towards paying off debt like student loans, taking a family vacation, or increasing your emergency fund account. I personally like cash reward cards with no yearly fee. I also pay them off every month.
If you like to travel you might benefit from a travel reward card. These cards earn points that you can redeem towards travel expenses. If one of your goals is to travel every year these cards can help you decrease your travel costs maybe even paying for the whole trip.
At Simpleivest we help you make sense of everything and will assist you in analyzing your different options when it comes to credit cards. Let’s work together to explore ways you can earn more money and decrease expenses.
Hermes Conesa CRPC®, MBA
CEO @ SimpleiVest, LLC