By juggling rewards and avoiding debt, you can make your credit cards work for you.
Some people are legitimately shopaholics, and this article isn’t really for them. If you can’t keep your spending under control, then cash is usually the best way to go. However, if you aren’t carrying debt yet still aren’t using rewards credit cards, then you’re missing out.
Rewards cards are credit cards that offer you incentives for using them. They’ll either provide you with cash back, airline miles, other travel incentives or the ability to apply points and “erase” previous purchases.
A great beginner card for someone just dipping their toes into the reward card world is a CapitalOne VentureOne card. One of the best perks of this card is that it has no annual fee, which really makes the rewards worth it.
With the VentureOne card, you earn 1.25 miles for every dollar spent. It also has a sign up bonus of 20,000 miles if you spend $1,000 within the first three months. Those miles can be used on travel. gift cards, account credits or charitable donations.
The reason rewards cards are not the best option for people who can’t control their spending is that the APR is often very high. The VentureOne card varies (depending on your credit score) from 11.9 to 21.9 percent.
If you have a Fidelity account, another terrific rewards card is the Fidelity Investment Rewards American Express Card. This card gives you 2 percent back on all purchases and invests the money directly into any qualifying Fidelity account: Fidelity Cash Management Account, brokerage account, 529 account or retirement accounts. If you’re struggling to get started with your retirement savings or funding your kids’ college education, this card could be perfect for you.
Fidelity Investment Rewards has no annual fee and there’s no cap on how much you can earn per month or year – every single purchase comes with the 2 percent cash back reward.
Some of you might have noticed that 20,000 bonus that comes with the VentureOne card – a lot of the rewards cards have sign up bonuses like that and there’s a small subset of people who opt to credit card churn to get them. Credit card churning is where you keep signing up for new credit cards, use
them long enough to get the bonus and then cancel them.
If you have a pretty good credit score, this can work out really well for you. I’d only consider myself a baby churner, but last year I decided that I was going to use credit card rewards to attend a conference in New Orleans. I had a credit score around 770 (anything above 750 is excellent). I figured with a score that high, I could easily handle the few hard credit inquiries that were about to go on my report.
So I applied for the United MileagePlus Explorer Card – which came with 30,000 bonus miles for spending $1,000 in three months. Currently, the card is offering a 50,000 sign up bonus, but you have to spend $3,000 in three months. It also waived its annual fee for the first year, so I set a reminder in my calendar to cancel it a year from that date.
Once I hit the spending limits for the United MileagePlus Explorer Card, I applied for the Barclaycard Arrival Plus. The Barclaycard came with 40,000 bonus miles for spending $3,000 in 90 days. This amounted to a $400 travel credit. This card also waived its annual fee for the first year, so I set a reminder in my calendar to cancel it a year later.
Between those two cards, I was able to cover airfare, a checked bag, a hotel room, a train to the airport and taxis.
Oh, and my credit score that I was a little worried about? It actually went up, since my credit utilization plummeted by adding an additional $15,000 of available credit.
Are you wondering how to hit those sign up bonus amounts? For some people, spending $1,000 a month is the norm, so they have no trouble. For me, I timed when I was getting my cards with some planned larger purchases. Professional credit card churners also do things like put all their utilities on their card, try to pay rent for a few months in advance or pick up lots of gift certificates to places they would use anyway (like grocery stores and gas stations).
A major point of credit card churning is not to spend extra to get the rewards, but to make your regular spending work for you.