5 Tips for Optimizing Credit Card Rewards

Credit card reward programs can be an excellent way to bring in a little extra money each year. Depending on your reward program and how much you spend, you can earn $500, even $1,000, by the end of the year. But there’s a right and a wrong way to earn and redeem your points. Follow these 5 tips to make the most of credit card rewards and you’ll end up being able to find one of the best cash back credit cards for your purposes.

Analyze Your Spending

Before you can know what type of card to get, it’s a good idea to take a moment to determine what type of spender you are. Are you a big traveler, racking up lots of hotel charges and airfare? Do you spend a lot of money on gas, or groceries? What about entertainment?

The idea here is to understand what type of spender you are so that you can be sure to only have the reward cards that line up with your current spending. (e.g. someone who commutes using public transportation wouldn’t make the most of a gas reward card).

Avoid Credit Cards with Fees

Make sure that the card doesn’t have an annual fee that might negate any amount you earn from having the reward card. I try to avoid cards with fees all together. If you’ve just got to have a particular card that has a fee, make sure you’re including this fee in your analysis prior to signing up with a cash back credit card.

Try to Avoid Spending Just to Get Points

Don’t put the cart before the horse. Make sure the rewards cards in your pocket aren’t influencing your spending. If having a reward card will just end up causing you to spend more, don’t get one.

Don’t Carry a Balance on Your Credit Card

This goes without saying for my readers, I know, but make sure you pay off your credit card balances in full each month. Like the annual fees, monthly interest charges will eat up any rewards you plan on earning.

Know When to Redeem Your Points

Before you cash in your rewards, take a second to understand the pay out structure. Most reward programs have a certain level to be reached prior to receiving optimal benefit for your reward. I stick with cash rewards mostly so here’s an example for you:

My credit card reward program will reward me for cash back at these point intervals:

Points Cash Back

2500 $12.50 Check
5000 $25 Check
7500 $37.50 Check
10000 $80 Check
15000 $120 Check
20000 $160 Check
25000 $250 Check
35000 $350 Check
50000 $500 Check

As you can quickly see, the ideal time to get a cash back check would be when 25000 points are attained. Anything less than that and you don’t get optimal value for your points. So make sure you reach your optimal level prior to pay out.

It’s also good to be aware of reward point expiration dates. To avoid expiration, I’ve got into the habit of using my credit card rewards for Holiday spending every year. Giving yourself a self-imposed annual pay out date will keep you from letting points expire. Best of luck.

Browse through some of the best cash back credit cards available today.

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I currently have a Bank of America credit card in which I earn no rewards from using. Because I'm starting to use it more and more, I've decided it's time to switch to a credit card where I can earn rewards. I'm wondering if people have suggestions on the best credit card to get based on the rewards/incentives associated with it?

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zach

wow, thanks so much for that great info. i didn't know about that website.

i guess i was under the impression that each person had a fixed amount of "available credit" and if you reach that amount they start denying you for cards, so i figured i'd cancel a few and give myself some room to get my limit increased on the other card. but it doesn't work that way, i realize now.

i have 5 cards and i won't cancel any of them. and i will call american express and ask them about raising my limit.

thank you again!!!

@zach

I would strongly advise against cancelling your other cards for two reasons:

1. Credit History - These cards show your credit history and prove that for quite some time people have trusted you to pay your bills and be a responsible borrower. You don't want to erase that history by cancelling the cards.

2. Available Balance - Even though you aren't using the cards, having an overall high available balance improves your credit score. By cancelling your other cards you would be lowering your available balance. Not a good thing.

To increase your AmEx credit line I would just call them and ask. If they say they can't, ask them when you should call back and ask again. Overtime they will increase your limit. Especially if you're using the cards each month and paying it off.

For more on this, I would do some research at http://www.nfcc.org/

i have a somewhat related question...

i'm paying off my credit cards, and have a little ways to go, but once i have them all paid off, i plan on only utilizing my american express blue cash card, and putting my utilities and regular purchases on that card, and paying off the balance monthly.

i have other cards open right now (currently with balances, but everything will be paid off within 6 months), and several of these cards have limits in the thousands, one of which is $10,500 and another is $5,000.

ideally i'd like to get my limit increased on my blue cash card, which is currently at $2,000, because it's the only card i want to use. would canceling my other cards, waiting a few months, and then requesting a credit limit increase on my american express card be the way to go about getting my $2000 limit upped?

i should note that when i applied for my american express card, my credit scores were in the 670 range. now, they're between 700 and 720.

thanks for your advice! and i love your blog. you talk about real issues that real people have and it's really invaluable. :-)

Miranda

Thanks for this great advice. Sometimes we so caught up in the "credit cards are evil" mentality that we forget that, when used properly and responsibly, there are some great benefits.

5 Tips for Optimizing Credit Card Rewards

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