There’s never been a better time to shop for a credit card, especially if you’re all about rewards.
Americans are spending on cards again. And as delinquencies and bankruptcies remain near record lows, banks are going out of their way to attract new customers. Sign-up bonuses have hit unprecedented heights. Bonuses of 40,000 and 50,000 points are easier than ever to find. Issuers are offering to double the amount of cash back you get at the end of your first year. You don’t even have to have pristine credit anymore to get rewards — many issuers are dishing out rewards to those with fair or worse credit.
Here’s the problem, though: Rewards typically aren’t free. Banks don’t just give them to you once you get the card. You have to earn them. To get a 40,000 to 50,000 point bonus, you will usually be required to spend $3,000 or $4,000 on the card in the first 90 days or so.
For some, hitting that number is easy. It’s just a regular month’s spending. For others, however, it is above and beyond what they normally spend on their plastic — and that can make for a dangerous proposition. After all, the last thing anyone should ever do is overspend just to get rewards.
The good news is that it doesn’t have to be risky. With a bit of forethought, planning and timing, you can hit those thresholds without spending a penny more than you need to.
Consider:
Life is expensive. There’s always something that needs fixing or is on the verge of giving out. Cars break down. TVs die. Couches get torn. Often, these things happen suddenly, and you can’t wait to upgrade. That’s what emergency funds are for — to keep unexpected messes from ruining your finances.
Messes aren’t always unexpected, though, and because of that, you can sometimes use them to your advantage.
Say you’ve known for months that your faded old couch needs to be replaced. Fearful of taking on extra debt, you carefully and conscientiously save for months to be able to pay cash for your new furniture. Then, you reach your goal, and you’re ready to plunk down your dollars for that sectional you’ve had your eye on.
Don’t do it.
Instead, if you have decent credit, apply for a new credit card with a sign-up bonus that appeals to you. Maybe it’s the Chase Freedom card’s $150 bonus after spending $500 in the first three months. Maybe it’s the Capital One Venture Rewards card that gives you 40,000 miles once you spend $3,000 in the first three months. Or maybe it’s the Discover It card’s double cash back at the end of your first year. There are many others. Whichever card appeals to you, apply for it and use it to buy that couch. Then, use the cash you had saved to pay off the card balance. (Remember: It might take a few weeks for the physical card to arrive, so plan accordingly.)
But I don’t want a credit card, you might say. I just want to pay cash and be done with it.
Well, that’s fine. But consider this:
— You could buy that $500 couch with the Chase Freedom card.
— You would get a $150 cash-back bonus for doing so because you would have hit the minimum spending threshold required to get that bonus.
— You could pay the balance off immediately with the cash you’ve already saved for the purchase, so you’d never pay any interest on what you bought.
— You would never have to use the card again.
That’s pretty hard to argue with.
For rewards-point cards, the process isn’t that cut and dried. Say you saved $1,250 to buy that stainless steel refrigerator you’ve always wanted. You could buy it with the Capital One Venture Rewards card, say, pay it off with the cash you had saved for the purchase and be nearly halfway to meeting the minimum spending threshold with that one buy. You’d then have to spend $1,750 in the next three months on the card to get those miles. That’s no small task — and you need to be sure to pay those balances off at the end of every month to avoid incurring any interest charges — but if you can swing it, those 40,000 miles would be yours. That equates to $400 to put toward travel purchases made with your card.
One last thing to keep in mind: If you carry a balance regularly, credit card rewards probably just aren’t for you. It doesn’t make sense to earn cash back or points if you’re paying 19 percent interest every month to get them. The math just doesn’t work in your favor. However, with a bit of planning, saving and timing, you can force the math to work in your favor and find yourself with a bit of extra money in your pocket as a result.
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Are You Overlooking This Credit Card Rewards-Boosting Strategy? originally appeared on usnews.com
