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Much has been written about the dangers of using credit cards. The biggest risk is racking up debt that haunts you for years. Of course you always have the option of paying your balances in full every month to avoid all interest charges and debt, like almost a third of card holders do.
That’s a good start, but you can do better than just staying out of trouble. You can actually use your credit cards to make or save thousands of dollars.
In 2015 I made a net profit of $2,829 from credit cards. I’ll top $2,000 again in 2016. While most of what I made was cash (or equivalents, like statement credits), the total also includes conservatively-valued things like free hotel rooms and car rentals. And it does not include difficult-to-calculate savings, like free rental car insurance or free extended warranties.
It’s not easy to reach that level, but you can probably make a few hundred dollars and save a couple hundred more if you use your cards the right way. Here are seventeen of the strategies you can use.
1. Earn Sign up Bonuses
I’ve pursued credit card signup bonuses for years, but in 2015 I got more serious and applied for a dozen cards. The signup bonuses amounted to $2,060 total, but that wasn’t all profit. I had expenses because normal purchases weren’t enough to meet the spending requirements on so many cards.
For example, you might have to spend $2,000 in 90 days to get a $300 bonus. One way to do that is to buy debit gift cards, and then use those to buy money orders to deposit in your bank account. There are fees for both debit gift cards and money orders, so I had expenses of $198 (these gift cards come with fees). My net profit from signup bonuses for 2015: $1,862.
You don’t have to wait to be targeted by offers from credit card companies. There are lists of the best signup bonuses online. Just be aware that opening many credit lines may make it difficult to get a mortgage loan. It’s recommended that you don’t apply for credit for at least several months before applying for a mortgage loan.
2. Earn Cash Back
There’s nothing wrong with getting points that can be redeemed for valuable things, but I prefer cards that offer cash back. I received credit card rewards totaling $1,471 during 2015, and spent $504 to make that happen (more on that in a moment), for a net profit of $967. About two thirds of that was straight cash back applied to my accounts.
There are many reasons to use credit cards instead of cash for almost everything, and maximizing your points and cash back rewards is near the top of my list.
There are many ways to earn more points and cash back. You can even charge child support payments to a credit card. But be sure the rewards are greater than any extra fees. The common 1% cash-back cards usually aren’t the best to use if there is any extra charge for paying by credit card. You’ll normally need at least 2% cash-back in those cases.
And speaking of 2% cards, my Citi Double Cash card is one of my favorites. With this card you get 1% cashback on purchases and another 1% when you pay. That’s 2% total cash back with no worrying about categories.
On the other hand, cards with special category rewards can be great if you…
3. Milk Those Categories
Many credit cards pay a higher cashback rate for special categories. Some are permanent, like the 5% cashback I get on office supplies from my Chase Ink Business card. Others rotate every three months, like Discover’s 5% categories.
To maximize these rewards you have to remember to use the right card. I have stickers on my cards reminding to use one for gas (3% back), another for groceries (3% back), and cable internet (5% back).
To get the most of your category bonuses you may need to try the next strategy…
4. Do Some Manufactured Spending
The term “manufactured spending” refers to spending for the purpose of earning points, cash back, or bonuses. There are elaborate forms, like buying Visa gift cards with a credit card, and then liquidating them (turning them into cash in various ways). But there are also simpler forms of manufactured spending.
For example, if the deadline to meet a spending requirement for a bonus coming, you could pay ahead on bills that you’ll have to pay eventually anyhow. I was once three months ahead on my water bill using this strategy.
5. Get Category Bonuses for Non-Category Purchases
Category bonuses are normally paid according to where the card is used, not the products bought. So, for example, when your Discover card is paying 5% cash back at home improvement stores, you get that 5% on anything you buy in Lowes or Home Depot. That includes anything you buy on those racks of gift cards.
Want 5% cash back on Domino’s Pizza? Just buy a Domino’s gift card at Home Depot when using a Discover card. If the category is gas stations, buy your gift cards there.
6. Double Dip to Make and Save Money
There’s a simple trick you can use to earn cash back and save money on the things you normally buy. Just use a rewards credit card to buy discounted gift cards. Today, for example, I bought some Walgreens gift cards for a discount of 14.5% (and I only shop sales, making these even more valuable). I bought the gift cards using a 2% cashback card.
7. Redeem Your Points the Right Way
To get the most value from your credit card points, be sure to check out all of the options. For example, I earned over 55,000 points for signing up and meeting a spending requirement on a Citi ThankYou Premier card. That was worth $550 in Walmart gift cards, but $687.50 if used for travel expenses. Naturally I used the points for a planned trip (they paid for the flight and car rental).
Some banks offer a bonus if you redeem your cashback into your bank account. I’ve done this with a Sun Trust card and a Bank of America card, earning an extra 10% each time.
8. Transfer Points to Cash In
If you have cards with unused points you might be able to transfer them to another rewards program in order to use them. For example, Marriott’s RewardsPlus program lets you turn your Marriott card points into United MileagePlus miles, which you can then redeem toward flights.
9. Do Credit Card Arbitrage
Credit card arbitrage is a simple idea: Get interest-free money from credit cards and put it in high-yield bank accounts. For example, though I normally pay my balances in full every month, I have carried balances of over $5,000 on credit cards because of their 0% interest offers (12 months is typical, but I have had up to 16 months interest-free). I parked the money in two bank accounts that paid 5% interest. One year I made a profit of about $500 doing this.
These 5% bank accounts are getting harder to find (and there are catches), but there are still a few out there.
Some people use convenience checks to access their 0% credit card money, but those normally come with a fee (typically 3%) that eats up most of the profit. Instead I just ran up the balances by using the cards for ordinary purchases, and then paid the minimum until the interest-free period expired. At that point I closed those bank accounts and paid the cards in full.
10. Use a New Credit Card to Save Money on an Old One
If you pay off your credit card debt sooner you’ll save money on interest charges. That’s simple enough. But did you know you can use a new credit card to pay off that debt faster?
The strategy is to use a “PIF” or “pay-in-full” card to cover all expenditures that you can afford to pay for each month. In this way you stop charging things to a card where, because there is a balance, you pay interest from day one. Instead you pay no interest on those purchases, and use the savings to pay down your debt faster.
11. Raise Your Credit Score to Save Money
You probably know that people with higher credit scores get better mortgage rates. But your score can also affect what you pay for other things, even auto insurance. So to save money, work on that credit score.
12. Save Money on a Cash Advance
If you need a short-term loan, you may be tempted to get a credit card cash advance. Of course you know there are fees, and the interest charges start accumulating the moment you get the cash. But if you use your credit cards the right way you can get the money you need and avoid paying for a cash advance.
One way to do this (there are several), is to use a credit card to buy debit gift cards, and then use those to buy money orders (I have done this many times at Walmart, for example), and then deposit those money orders into your bank account.
If, for example, you bought four $500 Visa gift cards, with a fee of $5.95 each, and you paid 79 cents each for four money orders, your total cost to get that $2,000 would be $26.96. Not only is this far less than the typical 4% cash-advance fee, but you will be paying the interest rate for purchases on your card instead of the much higher cash-advance rate.
13. Get a Card With No Foreign Transaction Fee
The fees for using your credit cards in other countries can really add up. To save money on those, get one (or more) of the many credit cards that charge no foreign transaction fees. Using these is also cheaper than using the local currency, because credit cards tend to have the best exchange rates.
14. Use the Right Card to Save on Car Rentals
Many credit cards offer rental car insurance when you use them to rent a vehicle. Check yours and use whichever one offers this benefit. Then be sure to decline the coverage the rental company will try to sell you.
15. Save Money With Free Extended Warranties
More than one person has saved money on repair costs thanks to the free extended warranties that some credit cards offer. Be sure to check your cards and use one that has this benefit when buying electronics and other covered items.
16. Get Creative
I mentioned double-dipping on cash-back and savings by using a rewards credit card to buy discounted gift cards. But you may find more creative ways to maximize your credit card profits or savings. Start by carefully considering all the benefits each credit card offers and figure ways to make the most of them.
For example, I once combined three strategies to maximize my profits on a SunTrust credit card. First, I ran up a balance on the card because it was interest-free for the first year, and I kept the payoff money in a 5% savings account. Second, I made mostly purchases that earned 5% cashback (which thankfully included groceries) Third, I redeemed that cash-back into my bank account for a 10% additional cash-back bonus. Between interest earned and cash-back I made $450 within a year, and this was a card that didn’t even offer a signup bonus!
17. Save on Taxes
If you put in longer hours at work to make and extra $1,000, you might give 10%, 25% or even more to the IRS. But if you make $1,000 from credit card bonuses, cash-back, and points, it’s all yours to keep. That’s right, credit card bonuses and points are not generally taxable. They are considered a rebate or discount rather than income.
If you can add to this list of ways to make or save money with your credit cards, please do so in the comments below.