Earning cash back credit card rewards may not seem as sexy as scoring a free flight on a travel rewards card, but it’s often the best strategy. Unless you spend a lot of money on travel every year, you’ll probably come out better financially with a cash back card.
Cash back rewards programs are often more useful for most consumers — they’re also often simpler. Still, there are certain guidelines that can help you get the most from a cash back credit card. The first is to never spend more than you can pay off each month. Any rewards you earn will be eaten up by interest payments. If you carry a balance, you’re better off getting a low-interest card.
Otherwise, you can maximize your cash back rewards by following these eight steps.
[See: 8 Ways to Maximize Your Credit Card Rewards.]
1. Choose an everyday card that earns good rewards for all kinds of purchases. Cash back credit cards generally offer at least 1 percent cash back on all purchases, meaning that you earn a penny for every dollar you spend on the card. Some cash back cards go as high as 1.5 or 2 percent cash back on general purchases. Of course, there are various trade-offs you need to consider beyond just the percentage. But all things being equal, the card with the higher cash back percentage is generally the better deal. Find the best card with the highest percentage for general purchases and keep it in your wallet for everyday use.
2. Pick one or two other specialty cards for special categories. Some cards pay bonus points for purchases at certain places, such as supermarkets, gas stations or department stores. Look at your annual spending in these categories to figure out which cards have the highest payoff for you. For example, if you’re considering a card that pays 3 percent back at supermarkets, estimate your annual grocery spend and then multiply that by 0.03 to calculate how much you’d earn back every year. Use that estimate to compare the card to others that offer fixed bonuses in other categories.
Alternatively, you may want to go with a card that earns 5 percent back in categories that rotate every quarter. You’ll have to keep up with those categories, but it may be worthwhile. Just note that with either of these card types, spending in non-bonus categories usually only earns 1 percent back.
To maximize your rewards, use your specialty cards for purchases in bonus categories, and use your everyday card for all other spending.
[See: 12 Simple Ways to Raise Your Credit Score.]
3. Weigh any annual fees. There are many cash back cards that don’t charge an annual fee, but some do. Choosing one over the other requires estimating how much you’ll earn in rewards every year. Some annual-fee cards earn higher reward rates that make the fee worth it. Other times, you’ll find yourself in the hole by paying an annual fee.
4. Find out the redemption minimum. Many cards won’t let you redeem your cash back until you’ve accumulated a certain amount, such as $50. Other cards let you redeem at any time for any amount, meaning that you don’t have to worry about any of your hard-earned points going to waste. This may not be a deal breaker, but it’s an important factor to consider when choosing a rewards card.
5. Keep track of quarterly bonuses. If you choose a card with rotating bonus categories, you’ll need to activate those rewards and then remember to use that card for that kind of spending. If you’ve got multiple cards, you may want to use a label maker or create masking tape labels indicating what you want to use each card for. There are also apps that track bonus categories for you.
6. Be aware of bonus points caps. Some cards limit how many bonus points you can earn. For example, you may earn 6 percent cash back at supermarkets, but only on the first $6,000 you spend every year. After that, you only earn 1 percent. Other cards impose quarterly earnings caps.
Once you’ve hit these limits, you’ll want to switch to your everyday card for purchases in those categories, assuming it earns more than 1 percent.
[See: 10 Easy Ways to Pay Off Debt.]
7. Use your rewards card for all your regular purchases — but not more. Paying with your rewards cards whenever you can just makes sense. You’ll not only be racking up points, you’ll also get credit card protections, such as zero fraud liability, which other payment methods don’t provide.
But you’ll never come out ahead if you’re charging extra purchases just to earn rewards. That’s what credit card issuers would love for you to do, but resist the temptation. Stick to buying only what you normally would anyway.
8. Redeem rewards regularly. Credit card companies may revoke your points after a certain period of time or if your account is no longer in good standing. Check the details of the program carefully and make sure to redeem your points before they expire. One way to help remember is to choose an annual cash-in day — maybe it’s right before summer vacation or at the beginning of the holidays. Whatever the day, don’t let the temptation to hoard points for a special purchase allow you to lose out altogether.
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8 Steps to Maximize Your Credit Card’s Cash Back Rewards Program originally appeared on usnews.com
