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I have thirty credit cards, but not because I like to shop or because I need to pay for things on credit.
In fact, every card is typically paid in full every month.
I have so many credit cards because I make money (or cash-equivalents) with them.
You can too! If you get the right card, or use one of the cards you already have the right way, you can make $500 to $1,000 or more in the coming months.
Then, if, like myself, you find the process to be more fun than tedious, get another credit card and repeat your success!
Some years I make thousands of dollars from credit cards. Here’s how to do it, starting with…
Three Basic Ways To Profit From Credit Cards
There are three basic ways to make money (or rewards that are as good as cash) from credit cards. They are:
- Earning a signup bonus.
- Collecting cash-back and other rewards.
- Investing the interest free money they provide.
Now, for our purposes we’ll consider credit card “rewards” to be the same as cash, but only if they provide something you would have paid for otherwise.
For example, if you travel regularly you have to stay at hotels, so earning free hotel nights is the same as making cash.
Also, the cash value of these rewards should be calculated according to the dollar amount you would have otherwise spent.
So if you planned to fly somewhere anyhow, and your credit card points give you $300 toward travel expenses, well, they’re worth $300 when used to buy that plane ticket.
On the other hand, as much as my wife and I like our free stays at Hyatt hotels, we would never pay $300 to $400 for a hotel, so I value those nights at $100 to $120 — what we normally pay for a place to stay.
Finally, the “profit” you get is only what you get after paying any fees or other expenses.
If you make $600 on card this year but pay a $99 annual fee, you really only made $501, right? And if you incur expenses doing a little bit of “manufactured spending” (more on that in a moment), you have to deduct that from what you make.
Okay, with that accounting clarification out of the way, let’s look at the three ways to profit, and then consider how to put them together to maximize what you make from each credit card.
1. Sign-up Bonuses
Not all cards come with a bonus for opening a new account but, when they do, it can be substantial. Of course, it’s not as simple as getting approved for the card and collecting the bonus. You have to use the card for a certain dollar-amount of purchases within a certain amount of time.
These requirements vary, and can be easy (I’ve earned bonuses that required one purchase of any amount) or difficult (some cards require $5,000 “spend” within 90 days). The offers change constantly, but as of August, 2019, here are a few examples:
Bank of America Premium Rewards Credit Card – 50,000-point bonus (can be redeemed for $500) plus $100 travel credit after $3,000 spend within 90 days of account opening (has a $95 annual fee).
Chase Ink Business Preferred – 80,000-point bonus (worth $800 to $1,000 depending on how you redeem them) with $5,000 spend within 90 days (has a $95 annual fee).
Bank of America Cash Rewards Credit Card – $200 bonus after $1,000 spend in 90 days.
You can find lists of the best credit card bonuses online with links to the applications, so you don’t have to wait for offers to come in the mail.
You’ll notice that the biggest bonuses often come with the biggest spend requirements. If you can’t meet the requirement naturally with your normal purchases, you may have to use a few tricks, like using the card to pay your mortgage through a service like Plastiq (the 2.5% fee in that case will reduce your profit, of course).
For more ways to meet spending requirements see my post on manufactured spending.
Some cards are worth getting for the big bonus alone, while others are worth it because of the ease of earning the bonus (lower spend requirement) and because they also offer a decent cash-back program, which brings us to…
2. Cash Back And Other Rewards
The best cards offer a big bonus and big rewards, but the cash-back and other rewards can be enough by themselves. For example, the Discover It Cash Back card, rarely offers a signup bonus, yet it’s one of my favorites.
What it does offer is 5% cash back on a different category (or categories) each quarter (on up to $1,500 in purchases). For example, for the first quarter of 2019 the bonus category was grocery stores. You can check their 5% Cash Back Calendar to see which purchases currently earn 5% cash back and what’s coming.
More than that, for new accounts Discover doubles all of your cash back earned after the first year. As far as I know that makes Discover credit cards the only ones which can earn you 10% cash back on purchases.
If you can max out the 5% category ($1,500 limit) each quarter, you’ll earn $300 in a year ($1,500 times 4 quarters times 5%), and then get an additional $300 after your first year. That’s $600 just on the bonus category purchases, plus 2% back on any other purchases (1% cash back doubled at year-end).
I made over $700 profit the first year I had my Discover card. It can be tricky, but there are usually ways to max out a category in most quarters.
For example, when the bonus category was “home improvement stores” and the end of the quarter was near, I simply went to the gift card rack at Home Depot and bought hundreds of dollars in gift cards for Shell gas stations — where I was getting my gas anyhow. I effectively used the “home improvement” category to get 10% cash-back on gas.
Many cards have permanent bonus categories, while others have rotating categories, and still others let you choose your 3% or 5% categories. You can plan accordingly when you apply.
For example, the American Express Blue Cash Preferred card pays 6% cash back at grocery stores.
If you spend $6,000 at grocery stores in a year (that’s the limit for the bonus cash back), you make $360. Wait until they offer a nice bonus for applying and you can easily make $600 or more the first year, even after the $95 annual fee.
Often the category makes it clear as to what qualifies. For example, if it’s “drugstores” then any purchases at a CVS or Walgreens will work.
However, sometimes you need to do a test purchase.
For example, Walmart Supercenters are not coded as a “grocery store,” but a Walmart neighborhood market might be. So, if you’re 5% category is “grocery stores” buy a small item and wait for your statement to see if you got the 5% before loading up on stuff using the card there.
Of course, you don’t have to limit your cash back to normal purchases. If you’re making 5% at grocery stores, you can buy a load of $500 Visa gift cards, which might cost you a $5.95 fee each, but will earn you $25 in cash back.
Those, in turn, can be used to buy money orders (for about a dollar) that can be deposited into your bank account. Your net profit (assuming you don’t spend money driving out of your way to do this) will be about $19 after the fee for the gift debit card and the money order.
I’ve done this more times than I can count, and you can learn the ins and outs of that trick and others in my post on manufactured spending.
3. Investing The Credit Card Company’s Free Loan
Many cards come with an interest-free period as part of the offer. For example, in addition to those great 5% cash back categories, the Discover It Cash Back card comes with 0% interest on purchases for the first 14 months.
Maybe, like me, you normally pay your credit cards in full every month, but those introductory offers are essentially free loans. You have to make the minimum payment every month, but if you like you can invest the rest of the money that would have gone to pay off the balance.
For example, consider the SunTrust Cash Rewards Credit Card. It offers 0% on purchases for the first 15 months.
When I got my card I ran up the balance to almost $6,000 by maxing out the 5% cash-back on grocery store purchases (I bought debit gift cards and did other manufactured spending), and, rather than pay it off right away, I invested about $5,000 of the money.
Where can you invest it and how much can you make? I put mine in a NetSpend High Yield Savings Account and earned 5%, or about $260 in 13 months or so.
Those types of high-interest accounts are tedious, with maximum limits ($5,000 in this case) and various stipulations (regular activity, difficult to access, etc.). For easier credit card arbitrage you might consider any of the many less-restrictive savings accounts that pay 2% or more.
If you’re offered fee-free balance transfers load any other credit card debt onto the new card as well, of course. By doing so you can either save money on interest charges or invest the money while you make the minimum payments.
No matter which way you do it, be sure to note on your personal calendar the date when your 0% teaser rate ends, so you can pay off the card prior to that. Otherwise, accidentally paying interest for a month or two may wipe out anything you gained.
Putting It All Together To Maximize Your Credit Card Profits
A bonus alone can be substantial, and with a little manufactured spending you can make some serious cash-back. Investing 0%-interest money is nice too. But ideally you want to do at least two of these things with each card.
Even better, aim for all three. For example, when the Chase Freedom Unlimited Credit Card offers a nice sign-up bonus (it comes and goes), jump on it. Here’s why:
- You’ll make an easy $200 (usually) from the bonus.
- The card pays 3% cash-back on everything (up to $20,000 in purchases) for the first year, so you can make another $600 there.
- The 0% intro rate for the first 15 months means you can probably make another $200 or more investing the payoff money while you make minimum payments.
That’s $1,000 potential profit from one card!
What’s next? Apply for another card and do it all over again!
If you’ve made money with credit cards, share your experiences below … and keep on frugaling!