For those with patience and time to spare, there are many ways to maximize credit card rewards earnings. Whether you are a cash back aficionado or a travel rewards card freak, getting the most out of your card does take a little planning.
Here are eight strategies for super-sizing your rewards:
1. Set priorities.
First off, decide how much time and energy you are willing to devote to managing and tracking rewards.
“For some people, playing the rewards credit card game is a serious hobby, and they devote a considerable amount of time and energy to it,” says Tim Winship, publisher of FrequentFlier.com. “But most people don't want to do that. That's something you have to consider up front.”
Rewards credit cards vary widely in how easy they are to use. Some come with complex terms like tiered rewards that kick in after a certain amount of spending. Or, as is the case with many airline credit cards, you may be able to earn maximum rewards only after you reach elite status. If you have the time to track rewards earnings and reap top-tier rewards, this is all well and good. However, if time is an issue, stick with simpler rewards credit card programs.
There are websites, such as MileWise.com, that can also help you keep track of your rewards.
2. Match rewards cards to spending patterns.
Cards with the best rewards perks typically come with an annual fee, but many also have a no-fee version. To find out which is best for you, do the math to see which card best fits your spending pattern.
For example, for a $75 annual fee, the Blue Cash Preferred Card from American Express rewards 6 percent cash back on supermarket purchases, 3 percent on gas purchases and 1 percent on everything else. Alternatively, the Blue Cash Everyday card (which has no annual fee) gives 3 percent back on supermarket purchases, 2 percent on gas and department store purchases and 1 percent on everything else.
To determine which card is the best fit, check how long it would take you to earn back the annual fee. With Blue Cash Preferred, you earn an additional 3 percent on supermarket purchases. That means an extra 3 cents for each dollar spent. To earn back the $75 annual fee, however, you'd have to spend $1,250 each year at the supermarket before the extra earnings kick in (ignoring for the moment any extra earnings on gas and department store purchases). For a family spending a lot of money on groceries each month, the annual fee might be worth it, but, for a single person, it might not be.
3. Mix and match.
When it comes to maximizing rewards, it often makes sense to mix and match rewards cards. In addition to picking a credit card that enables you to leverage spending on purchases made in supermarkets, drug stores and gas stations, consider getting a card that offers cash back in rotating categories, such as the Chase Freedom Card. Alternatively, if you travel frequently, find an airline rewards card that will let you earn the most benefits on travel and travel-related purchases.
4. Pick a primary card.
While strategic mixing and matching of rewards credit cards can be a great way to maximize earnings, be careful not to spread yourself too thin.
“People often get themselves involved in too many rewards programs, so that their earnings are diffused over multiple programs,” Winship says. “It's very important to consider your options from the beginning and try to focus your earnings activity on one primary program and one or two secondary programs. Don't fall into the trap of participating equally in several programs.
5. Put your fixed monthly expenses to work.
As much as possible, use your primary rewards card to pay your regular monthly bills, such as telephone bills, mortgage, cable bills and so on. Just make sure to budget for your charged fixed expenses so you can pay the credit card bill when it's due.
6. Don't forget about business expenses.
If you run a small business, look into getting a business credit card that will give you cash back on qualifying purchases such as computers and electronics, office supplies, phone bills and transportation. With the Chase Ink Cash Business credit card, for example, you can earn 5 percent cash back on the first $25,000 spent annually on office supplies and phone and cable expenses.
7. Spread it out.
Get a card for all members in the household responsible for making purchases to earn rewards on all expenditures. If you have employees who make purchases for your business, get cards issued for them as well; it automates expense reporting, and you can set spending limits to protect the bottom line.
8. Don't forget about the big picture.
Keep the larger picture in mind when you're making small financial decisions like applying for a new rewards credit card.
“We play all these games on credit cards to get better rates on balance transfers or rebates on rewards credit cards,” says Michael Rubin, author of the book “Beyond Paycheck to Paycheck.” “But to the point that this throws your FICO score so you go from the highest credit score to the next one down, you end up costing yourself much more than you'll ever save.”
A final reminder: Be sure to pay off your balance in full on your rewards credit cards each month. Otherwise, you'll end up paying more in interest than you will earn in rewards. If you need to carry a balance, look for a card that offers the lowest possible interest rate rather than a rewards card.