It is not uncommon for married couples to fight over finances. In my case, the arguments rarely have to do with how much my wife and I spend, but rather what credit card she used.
You see, I have a system in place. If it is a restaurant meal, it must be used on a card offering 4% cash back for that category. If it’s for groceries, it should go on another card with a 3% reward for supermarket spending. And if it’s for… well, you get the idea.
Anyway, I’m a rewards addict. And yes, my wife thinks I’m crazy. (And she often ignores the “rules.”)
But I am not necessarily alone. Many of us try to maximize the cash back dollars, points or miles that we can earn through the use of our credit card. After all, there is money to be made – in my case the annual rewards easily exceed $ 500 – or the equivalent in flights, hotel stays or merchandise and gift cards. This is especially true during the holidays when our spending naturally increases (Black Friday is approaching, after all).
And that doesn’t mean anything that card issuers are stepping up their efforts to get us to apply for new cards, with signup offers galore, as we continue to emerge from the darker days of the pandemic – some of us are low to the ground in savings. The rewards are also getting a little more generous: A recent Wall Street Journal article noted that cash back cards now offer an average of 1.11% per dollar spent, which is the highest rating since at least 2010. (Miles and points cards also climbed to their highest figure – 1.2 miles or points per dollar spent – in over a decade.)
So what’s the best way to reap these rewards? I’ll walk you through how I do things and share some expert advice as well.
Don’t think about the rewards if you don’t pay your bill in full each month: The key to any reward strategy is to earn as much as possible, but it’s hard to achieve that if you pay 16% interest on your balance each month (and that’s only the mean interest rate, according to Bankrate’s CreditCards.com site.) Likewise, if getting a reward card is going to make you charge more than you should, then forget about it. “You absolutely need to understand your spending habits before you get involved in this,” said Roger Tran, a certified financial planner at Facet Wealth, a virtual consulting firm.
Determine if you prefer Cash Back or Miles / Points: There are two very different approaches to credit cards. If you like to travel, you might want to take the miles / points route, especially with a card connected to a preferred airline or hotel chain. But if you’re more of the stay-at-home type like me, cash back might be the way to go. In general, miles / points cards offer more value for money – and The Points Guy website provides a helpful (and regularly updated) guide to the cash value of miles and points. But cards also pose their own challenges, especially in an age when airlines and hotels are making it increasingly difficult to use miles and points to their maximum value. “We’ve seen a lot of devaluation,” said Ted Rossman, senior industry analyst at CreditCards.com. Oh, and don’t forget: many point / mile cards have an annual fee, which should be taken into account when assessing their value.
You can benefit from several cards: You can mix and match cards to increase your potential rewards – just like I mentioned with my strategy of using one card for restaurants, another for groceries, etc. With some cash back cards, the spending categories with the highest rewards (say, 5%), from restaurant memberships to gyms, change quarterly. Or the cards may require you to choose from a list of categories every three months. Typically, I like to use a cash back card with a 2% reward – there’s quite a few that match the bill, Rossman notes – for my daily expenses. Then I sprinkle some more depending on what I buy. By the way, nothing says you can’t combine cash back cards and miles / points either.
Enter these bonuses: Your biggest payout with credit card rewards often comes right off the bat, namely the signup bonus. Typically, these require a certain amount of spending, say $ 1,000 in the first three months, to earn the additional reward. Which means if I have a new card with a bonus it tends to take precedence over the other cards in my wallet, at least until I hit the required spending level. It’s also worth noting that you can double down, so to speak, by having your spouse apply for the card. But there are reasons to be careful when applying for new cards. Which brings me to …
The caveats: You can go too far by playing the game of rewards and bonuses, experts warn. They suggest going easy on these card offers because grabbing too much can hurt your credit score. “It’s one of the basic rules: don’t apply for too much credit too often,” said Matt Schulz, chief industry analyst at LendingTree. On top of that, card issuers often turn down requests from those who keep applying – they are wary of “churners,” as people like me are called (and trust me, I have received more than my share of refusal).
In the end, there is another risk: the more cards you have, the more difficult it becomes to manage them. I’ve learned that it helps if you set all of your cards to automated payment, but even then I missed a first payment on a new card because I was less than organized. I also agree that there are those who don’t want to spend part of their life worrying about an extra percentage earned in rewards; people like my very rational wife. Speaking of which, I have to remind her again which cards to use for our holiday shopping…