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How to Use Credit Card Rewards While Staying Out of Debt

Credit card rewards have taken me around the world for cents on the dollar compared to list prices. I’ve been to Tel Aviv for $72.50 one way, Spain for a few hundred bucks, and flew my family across the country for $22.20 round trip. All of this thanks to travel hacking.

But with great rewards cards comes great responsibility. Poor credit card management can lead to expensive interest, fees, and a lower credit score.

If you can make on-time payments and avoid the temptation to overspend, rewards cards are a great way to travel and get cash back from spending you already do.

Pick the best credit card rewards for your goals

Some people love to jet-set around the world and look for reward credit cards specific for traveling. Others may prefer cash back or gift cards to save up for fun electronics, dinners out, or other accessories.

There are no right or wrong favorite credit card rewards. Just make sure you are getting the best return for each dollar you spend.

Typically, travel rewards have the best value. You can get 2¢ or more per dollar spent in some cases, whereas most cash back and gift cards only give up 1¢.

For travel hackers, check out the best three starter rewards cards for comparison. If you are totally new to travel hacking, check out this guide.

Use the right card for the right transaction

I usually have three to five credit cards in my wallet at any given time. While that may seem excessive to some people, I have a strategy and set of priorities for using each card.

Credit card rewards often give different bonuses for each dollar spent, so pick your cards for each transaction carefully.

Here are a few examples of credit card rewards programs:

This is why I carry multiple cards. I use the Chase Sapphire Preferred at restaurants, Chase Freedom where I can get a 5x bonus, and American Express Everyday Preferred for most other transactions. I get the best credit card rewards possible for every dollar I spend.

Pay your reward credit cards in full each month

Now that we’ve looked at spending, let’s look at paying those reward credit cards off.

There is one big rule that you should always follow no matter what. This big, bold rule is always pay off your entire credit card balance in full each month.

If you use your cards for purchases and don’t pay them off each month, you end up paying big interest to the bank. Paying substantial interest can quickly offset any bonuses and rewards you get.

A free flight to Europe is awesome. But if you pay $2,000 in interest on the purchases you used to get that flight, you would have been better off skipping the credit cards and just buying the plane ticket.

Make a payment schedule that works for you

You get a bill every month, and that is when most people make their credit card payment. Did you know you can pay your credit card at an earlier date, even multiple times per month?

When I had a regular paycheck schedule at my day job, I paid my cards off in full every payday. That allowed me to match my income to my expenses and avoid a giant bill at the end of the month.

Bonus tip: you can do this with you student loans too!

Use the 24-hour rule for big purchases

If you ever get tempted to make a big purchase that could be a budget buster, use the 24-hour rule to avoid overspending. The rule works just like the name implies. If you want to make a big purchase, wait at least 24 hours to see if you still want it to avoid buyer’s remorse.

I use this rule for any online purchase that isn’t for a household need (like groceries or diapers) and any fun purchase over $100. If I still can’t live without it after sleeping on it and thinking it over, it could actually be worthwhile.

If you are a superstar budgeter, you can make it a 72-hour rule or even a one-week rule.

Make an annual fee calendar reminder

I was hesitant to get started with rewards credit cards early on because of the annual fees. Why should I get a card that costs $95 per year when I can use another cash back card with no annual fee?

I quickly learned that I get a heck of a lot more than $95 in rewards and value from my cards with a fee than those without a fee. Where I might have earned $250 in cash back credit card rewards, I can get $1,000 in free flights and hotel nights from better rewards cards.

However, every card is not worth the annual fee in the long-run. So I mark my Google Calendar with a recurring reminder a month before the fee would be charged for each card. I recently closed one hotel card because I wasn’t getting enough points to make up for the fee.

Credit score concerns

Keep in mind that opening new credit cards can temporarily lower your credit score. So if you are looking to buy a new home or car in the next three to six months and need to take out a loan, hold off on getting any new cards.

Closing any credit cards will also lower your total outstanding credit limit, which impacts your credit usage ratio.

If you are closing a card, make sure to call the bank and ask to convert to a no-fee card. This card can then sit at the back of a drawer unused. Or, move the open credit to another card with the same bank to keep your total available credit as high as possible.

Finally, opening and closing a lot of cards quickly may lower your score. It can also lower your average age of credit, another important credit metric. I

Instead of opening and closing cards quickly, try to keep them open as long as possible if they are not charging you a big fee. That will help your score increase over time.

Since I started “churning” rewards credit cards, my score has increased by about 100 points!

Start small with credit card rewards

The world of credit card rewards is big and has amazing potential. But there’s also a lot of confusing rules you have to wade through.

With so much to learn, it is best to start slowly and build up from there. Pick one favorite card, and when you get it down, start to expand to other rewards cards.

The sky’s the limit, so spend responsibly and enjoy all of those free credit card rewards!

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Published in Credit Card Debt, Credit Cards, Debt,