This article was last updated on March 8
Today, I’m going to show a few ways to save money using credit cards. However, to take advantage of this, you have to pay your bills in full every month. If not, then credit card issuers are taking advantage of you. Also, I just want to mention that credit cards aren’t for everyone. Some people let their spending go out of control if they carry one in their wallet. For these folks, it is best to carry and pay with cash.
With that out of the way, let’s figure out some ways to actually save money using credit cards. The reason why we can do so is because many credit cards give back cash rebates for using the card on regular purchases (it could also be in the form of reward points). The reason they could do that is because credit card issuers earn fees from merchants for every transaction in which a credit card is used and swiped through the system.
But first, it is important to understand how credit cards provide cash rebates. The standard way is to give their card holders a 1% rebate for every dollar that they spend on the card. But the better ones do better than that. The good ones pay more than 1% rebates (as high as 5% in some cases) on certain categories of expenses like gasoline, groceries, dining etc.
How Rebates Work. Increasingly, reward programs also give rebates when you shop online through the credit cards’ shopping portal. Most credit card issuers have some type of shopping portal program. Here is how it works. Rather than say going to GAP.com to shop, you can go log on into your credit card account and and then go through to the site. By doing so this way, they are able to track your spending when you use your card. Discover Card, Chase, Citi all have some version of this. They compete based on the number of merchant partners that they can sign up for.
There is another phenomenon going on the the cash back card segment and it is called rotating categories. In the good old days (pre 2008 credit crisis), many cards were giving away rebates at a 5% level. That proved to be unsustainable and so rebates have now fallen to 2-3% levels. Some cards still offer 5% rebates on particular items but only do so during certain times in the year. This is something consumers have to be aware of and they can take advantage of if they are savvy enough.
Once you understand how the cash rebate game works, now is the time to choose the best card that will earn the most rebates for yourself. The first thing you would have to do is to list down a list of all your expenses. You should probably break them down into categories like gas, supermarket, drugstore etc and mix and match the best cash rewards credit cards perhaps with gas rebate credit cards to really save some money.
You should also use other money saving techniques like coupon cutting. By using a manufacturer’s coupon with a store coupon and a cash back card, you can save a lot on your grocery shopping.
Saving On Vacations. Instead of using credit cards to save on everyday expenses, you can also use them to save for your vacation. There are several ways to do this. One way is to get credit cards that lets you earn frequent flier miles. This strategy would work for folks who travel a lot with one particular airline. For example, if you always fly with Continental Airlines, you can always get a continental airlines credit card. Earning frequent flier miles with credit cards boosts your frequent flier points and you can save more by making use of airline alliances, transferring points to the airline which requires the least points for travel.
Another way is to get regular reward credit cards. This method will suit those who are not serious road warriors but would like to save money for their annual vacation. Reward cards allow you to earn points which can be exchanged for things like airline tickets, cruises, hotel rooms, gift cards and merchandise. For most travel rewards (based on calculations), you will end up getting a 1% rebate equivalent.
Savings Money on Business Expenses. Recently, I wrote a post on my home office set up. I should probably consider a separate business credit card to separate my personal and business expenses. Many business credit cards offer perks like discounts and cash rebate on things like “office supplies”. By doing so, Andy can save even more money and yet keep his business expense separate.
Conclusion – There are folks who have gotten into credit card debt and simply hate credit cards. But for most folks who are responsible, using credit cards wisely offers a way to save money and get some cash rebates and even free airline tickets.
~ Seven Sure Fire Ways For Students to Rack Up Debt and Ruin Their Financial Future (How to Avoid This Outcome)
~ Buy Now versus Interest Free or Pay Later (Deferred) Plans
~ Credit Card Reform: Penalizing the Good for America’s Bad Personal Finance and Spending Habits
~ Breaking Down and Improving your FICO Credit Score