Clark Howard, Clark.com
Credit cards can be valuable tools to have, but only when they’re used the right way. By minimizing fees and avoiding finance charges you’re able to put your card to work for you — not against you.
You might be asking yourself, how do I get the most out of my credit card? Well, let’s dig a little deeper and find out how to use credit cards the way they were designed.
Finding the right credit card
There are hundreds of different credit cards to choose from. For many people, that can make the entire process quite confusing. But one of the most important things you can do when picking out a credit card is get one that fits you.
Understand your spending habits, because this will help lead you in the right direction. The last thing you want to do is sign up for a credit card that you will have no use for.
Do you love to travel? Then you might want a card that rewards you with free flights or hotel stays. Are you a road warrior for your company? If so, then you might look into a gas credit card. Would you prefer to have a card that pays you cash back?
Figuring out which card is right for you is the first step. Once you’ve done that, you can start figuring out how to maximize everything your card has to offer.
How to use credit cards to earn the most rewards
One of the most attractive features of many credit cards is the sign-up bonus. The size of the bonus depends on the card, but there are travel reward cards that have been known to offer as much as 100,000 points to new card holders. There are even cash back cards offering $700 or more.
The biggest thing to know about that signup bonus is that it almost always comes with a spending requirement. Yes, there are cards that offer a bonus after a single purchase, but that is a rarity. Most of the time, you’re going to be required to spend anywhere from $1,000 to $5,000 over the first few months. There are cards that will even require a $10,000 or more spend.
Analyze the signup bonus and make sure it’s going to be attainable for you. The last thing you want to do is expand your spending outside your comfort zone just to get the bonus. That’s how credit card debt gets its start.
Bonus reward opportunities
Always be on the lookout for special earning opportunities. Occasionally, credit card issuers will give their cardholders the chance to earn bonus rewards on purchases. Some cards will send mailers to alert you about different opportunities. Others will send their cardholders an email. When you see an opportunity pop up, read it carefully. Occasionally, you might need to opt in before taking advantage. Other times, they might be automatic.
One of the easiest and most underutilized ways to earn rewards is through online shopping portals. Most major credit cards will have their own shopping portal. When you use one of these portals to do your online shopping you will earn bonus credit card points. These points are in addition to what you’ll earn from using your credit card on the purchase. You’re going to be shopping anyway, so why not get rewarded for it?
Mix multiple cards to earn even more
Many times, people will use one credit card for all of their purchases. Unfortunately, in doing this you could be leaving thousands of points on the table. Instead of using just one card, use two or three that will help you maximize your earnings.
One of the more popular trios right now to to carry the Chase Sapphire Preferred, Chase Freedom, and the Chase Freedom Unlimited cards. The Chase Sapphire Preferred will offer 2x points on both dining and travel. The Chase Freedom card will give you 5x on rotating categories each quarter. Then, to complete the lineup, you have the Chase Freedom Unlimited which will earn 1.5x points on every other purchase.
Don’t forget about the other perks you’ll receive
One of the most underrated advantages that credit cards have over debit cards are the individual perks they offer shoppers and travelers. These can save you hundreds, if not thousands, of dollars. Here are just a few:
Most of the major credit cards now come with some form of price protection. If you make a purchase with your card but find it for a lower price somewhere else within a certain period of time, you will receive the difference back to your account.
Most of the time the manufacturer’s warranty that comes with the products we buy is far from adequate. Luckily, if you use a credit card, many of them will add a year or more onto that existing warranty.
Trip cancellation insurance
If you live anywhere that has severe winter weather, then you know how common flight delays are. One delay can completely throw off a trip. If you have non-refundable travel plans booked, it could mean you’re out some cash. Luckily, there are several credit cards that will provide compensation if you have non-refundable travel plans affected by an eligible reason.
Auto rental insurance
If your credit card includes an auto rental collision damage waiver, the next time you rent a car, you can decline coverage from the rental agency. No need to spend extra money when your credit card already has you protected.
The benefits are worthless if you are not smart about using your card
Credit cards can be valuable tools to have in your wallet. They can provide you with cash back or with free travel around the world. But all of that is worthless if you are not smart about your spending. By making sure your balance is paid off each month, you will avoid accumulating debt and costly finance charges.