Here is an idea that you won’t hear very often: you can make money from credit cards. In fact, standard wisdom is that you should only have one credit card for emergencies, and you should shred all old cards. This wisdom is probably good advice for many Americans, but nonetheless I make money from credit cards, and you can learn how to make money with credit cards. However, if you are responsible, you can actually make money from credit cards. Since I first got a credit card back in 2002, I have made over $1000 in rewards, and paid $0 in interest. So how is it that when thousands of Americans are paying way too much money to the credit card companies, I am making money from them?
Basically, it is a combination of rewards cards and responsibility. I have cards that get me 1% cash back on all purchases. Another gets me 5% cash back at grocery stories, gas stations, and pharmacies. Yet another gets me 5% worth of reward points back on restaurants and movies. Still another gets me 2% cash back on utility bills, and 5%+ back at certain special merchants. I also have one that gets me 3% worth of rewards points at Amazon.com. Oh, and there are the business cards too: 3% back at restaurants, home improvement, and office stores, and 5% back on internet services purchases. Yes, I have a lot of credit cards, but contrary to popular belief, having a lot of credit cards doesn’t hurt your credit score. Now, if you carry high balances on your credit cards, that hurts your score.
Here is the way I look at it: if I spend $100 in groceries, paying with cash gives me $0 back, whereas if I pay with my Cash Plus Card (unfortunately, it is no longer offered for new customers), I get $5 back. It may not seem like a lot, but if you spend $100 on groceries a week, then using a credit card with rewards like this is able to earn you $260 a year.
Below is how to use credit cards to make money. Note that to get some of these cards you have to have established credit. Also, it is wise to not apply for all the cards you want at once, since applying for many lines of credit at once temporarily lowers your credit score (for about 6 months).
– Look for reward cards, and apply for the ones that you think you will use
– Only apply for cards that don’t have an annual fee
– Use the right credit card for the proper purchases (i.e. use the gas rewards card when you buy gas)
– Pay off your balance on-time, every month, so that you pay no interest or late fees
– Pay your credit card bills online. If you have 5 cards, paying for envelopes and stamps adds up.
– Be responsible. This only works if you do not treat your credit cards as free money. If you don’t spend within your means, this is pointless.
– Look for offers of 0% introductory interest rates. This way you can pay off your balance slowly, keeping the money in a savings account until the end of the introductory period, earning even more money. Make sure you actually save the money and have it to pay off the balance after the introductory period is over.
– If you must carry a balance (emergencies, etc), apply for one low interest credit card (with no annual fee), and only carry balances on that card, but not on reward cards, which often have high interest rates.
Let me reiterate: this method is only for those who are extremely responsible with credit cards. If you pay interest, get levied late fees, or spend more than you otherwise would, you will actually be spending more money than you are going to make on rewards. Since the average American credit card debt is around $10,000 it is clear that this method is not for everyone. In fact, the best way you can save money if you currently have a lot of credit card debt is to pay off the debt you have; don’t even begin to use this method until you have paid off your other cards. Nonetheless, this method is effective if you can make it work.