It seems like a there has been a lot of bad press with credit cards lately. To be fair, some of it is warranted. However, Credit Cards actually supplement my income and increase my purchasing power as well as making transactions easy and easy to track. This is a simple guide to making your credit cards work for you.
These are my simple steps to earning 3-5% interest on everything you buy.
Step One: is to find a credit card that offers cash back or points that can be redeemed for cash back. The two cards that I would highly recommend for this are the Chase Freedom Rewards card or the American Express Blue Cash Card. I bet this could be easily done with a Discover card or any cash back card as well.
I will use the chase freedom rewards card as the example. Remember, when you are searching for a card, interest rates do not matter. You are looking for the highest amount of rewards per dollar spent period. The only exception is that you do not want a card that has an annual fee.
The Chase Freedom Rewards card offers 3% cash back on your top 5 categories of spending (with a chase checking account) out of a total of 15 categories. One important thing to note with this card is that when you've earned $200 in rewards, Chase will let you redeem it for $250.
So, if everything you bought is in those five categories, and you wait for $200, you will be getting 3.75% cash back because of the $50 reward. You probably won't get all of your purchases within the 3% categories, but it's not hard to get most purchases at 3%. If you want to be conservative, even at the 1% categories and getting $250 on $200, you will be getting %1.25 which isn't bad considering you're only going to purchase things you would normally buy anyways.
Step Two: This is how you will really maximize your rewards. This part does require a little bit of budgeting, but you don't have to be super strict.
The first part of step requires you to put the money you plan on spending (on your cash back card) into a savings account. You could put it into any savings account, but I would recommend an online savings account because of it's ease of use. I personally use INGDirect. There are some online savings accounts that offer a higher interest rate, but this one is pretty no hastle and has no requirements to fulfill like minimum deposits or transactions.
INGDirect is currently paying 1.5% on all savings account deposits. This isn't a large amount of money, but the fun part comes when you combine this with your credit card cash back.
So, now that you have your cash back card and your online savings account, you can get started on earning extra rewards.
The plan starts when you get your paycheck. Deposit as much money as you think you will spend into your online savings account. Then, when your credit card bill comes due, withdraw the exact amount from your savings account to your checking account so that you can pay your credit card. You've just added 1.5% cash back to your existing 1%-3% cash back. If you spend only in your top 5 categories and you get your 1.5% savings account, you've just earned 5.25% and you hardly even had to do any saving. It's like earning interest on the money you already spend or in another light, it's like getting 5% off everything you buy.
Things to remember:
Always pay your credit card in full every month.
Always deposit your money into your savings account as early as possible and take it out as late as possible, but without being too late to pay your credit card bill.
To really start earning money back, put your cash rewards back into your savings account to earn interest on the money you spend and the money you save instead of just earning interest on the money you save.
Enjoy,
Bob Heller
