Credit cards often get a bad rap for being debt traps that can spiral out of control if you’re not careful.
But when used responsibly, credit cards can help you build wealth over time through rewards and benefits. The key is having a plan and sticking to it.
This year, I made it a goal to leverage my credit cards to earn as many rewards as possible while paying the balances in full each month.
No interest charges for me! It’s really paid off, and I’ve earned over $2,000 in cash back and travel rewards so far. Not too shabby.
This article shares my strategy for sustainably maximizing credit card rewards.
Read on if you’ve been wary of credit cards or want to earn more rewards. My system could work for you too.
How I Use My Credit Cards Wisely to Build Wealth
So you want to use your credit cards to make money instead of costing you money? It can be done if you’re disciplined.
Here are the steps I take:
1. Choose Credit Cards That Match Your Spending Habits
To make the most of your credit cards, choose ones that match how you spend money.
Are you a frequent traveler or big on dining out? A huge shopper or an avid entertainment fan?
Whatever your habits, there are cards tailored to maximize rewards where you splurge the most.
For example, if you’re constantly on the go, a travel card that offers bonus miles or travel points for every purchase is ideal.
Some popular choices offer big sign-up bonuses and points for flights, hotels, and more.
If eating out is more your thing, choose a card that gives you extra points for restaurants, takeout, and bars.
For the shopaholics, a card with accelerated rewards for clothing stores, tech stores, and beyond is a no-brainer.
And for at-home streamers, a card with entertainment perks like streaming service credits or movie ticket offers makes perfect sense.
You’ll reap the biggest benefits by choosing a card aligned with where you drop the most dough.
2. Pay Your Balance in Full Each Month
Making on-time payments of your statement balance each month is key. This allows you to avoid interest charges and build wealth with your credit cards.
Pay at least the minimum amount due, but aim for the full statement balance. The statement balance is the total amount you owe for that billing period’s charges and any unpaid balances from previous bills.
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Pay this amount by the due date to avoid late fees and damage to your credit.
You can make multiple payments during the billing cycle to pay the balance.
Some cards even allow you to set up automatic monthly payments for the statement balance.
Also, keep track of your spending versus your payments to ensure you can pay in full.
Make a budget, use a spreadsheet, or use your credit card’s spending alerts to stay on your balance.
Paying interest charges each month means you’re losing money that could be working for you.
By avoiding interest and paying on time each billing cycle, you can put that money towards other financial goals like saving for emergencies, vacations, or retirement.
Over time, the money you save on interest charges will really add up.
3. Use Credit Cards for Rewards and Cash Back
Using your credit cards wisely can help you earn rewards and cashback to build wealth over time.
Here are some tips to maximize the benefits of your cards:
Choose Cards with Valuable Rewards
Do some research to find cards that offer rewards you’ll use, like travel points, cash back, or gift cards.
Many cards offer sign-up bonuses worth $100s. Compare different cards’ rewards rates and redemption options.
A card with 3% cash back on dining and 2% on gas may be better for your spending than a flat 1.5% on everything.
Redeem Rewards Frequently
Keep your points or miles from sitting unused where they risk devaluation over time.
Redeem them for statement credits, gift cards, or travel as often as the options make sense for you.
Some programs require a minimum point balance to redeem but empty your rewards accounts at least once a year.
Consider Rotating Categories
Some cards offer 5% cash back or more in rotating categories like gas, groceries, and entertainment.
Opting into the higher rate each quarter is an easy way to earn more rewards. These limited-time offers often only require you to activate them, so you have little to lose by participating when you can.
4. Look for Sign-Up Bonuses to Earn Extra
Credit card companies frequently offer sign-up bonuses to attract new customers.
This is essentially free money that can help you maximize the rewards from your spending.
Top travel and cash-back cards offer generous sign-up bonuses, like 50,000 points or $500 cash back after spending $3,000 to $5,000 within the first 3 months.
Once you’ve earned the sign-up bonus, you can keep using the card to continue racking up rewards on all your purchases.
Or, if there’s another great offer from a different card, you can apply for that and earn another bonus.
Here are some strategies to maximize this tip;
Compare Different Cards and Their Current Bonus Offers
See which ones match your spending habits and reward goals the closest. The bigger the sign-up bonus, the more rewards you can earn from the start.
Meet the Minimum Spending Requirement
Ensure you meet the minimum spending requirement to earn the bonus within the specified period.
If needed, you can slightly increase your spending on the card for a few months by charging things you usually pay for in cash or with a debit card. Pay the balance in full to avoid interest charges.
Don’t Apply for Too Many Cards at Once
This can hurt your credit score by lowering your average account age and increasing your hard inquiries.
Limit applications to no more than 2 or 3 cards every 6 months to a year.
FAQ
Why Do I Need a Credit Card?
Credit cards are useful for building credit and earning rewards, but only if used responsibly.
Using a card for regular expenses like gas or groceries and paying the balance in full each month establishes a good payment pattern, which credit bureaus reward with a higher score.
Many cards also offer cash back, travel points, or other perks as rewards for your spending.
Credit cards charge relatively high-interest rates if you don’t pay the balance. Only spend what you can afford to pay off each month.
How Many Cards Should I Have?
As a rule of thumb, aim for at most 3 to 5 credit cards in total. Having too many new applications or unused cards can hurt your score.
Focus on using 1 or 2 primary cards for most purchases and the rest for occasional or bonus category spending.
Pay off all balances in full to avoid owing interest charges, which can quickly outweigh any rewards earned.
How Much Should I Spend Each Month?
Only spend what you can pay off in full by the due date. As a beginner, aim to use 30% or less of your credit limit across all cards.
Keeping low balances relative to your limits shows you can responsibly handle the credit extended to you, which helps your score the most.
Paying in full and on time are the two most important factors.
What if I Can’t Pay the Full Balance?
Avoid this whenever possible, but make at least the minimum payment on time if needed.
Pay the remaining balance as soon as you can avoid further interest charges. Your score may be temporarily lowered until the balance is paid.
Consider setting up automatic payments for the minimum due to ensure no late payments.
Also, you can get help from a financial counselor to create a realistic payoff plan.
Using credit cards responsibly is a learned skill, so keep going if you make a few mistakes. Stay committed to positive habits and continuous improvement.
Conclusion
Using credit cards responsibly by spending within your means, paying balances, and maximizing rewards is a simple way to make your money work for you.
The key is using your cards strategically to maximize the rewards without going into debt.
The rewards really do add up over time if you make the most of these opportunities.
The best part is that responsible use costs you nothing extra. Now go out there, start swiping, and start saving!