Credit cards get a bad rap, although it is justified. Credit cards can pose a danger to your personal finances if you use them irresponsibly. Unfortunately, this is all too easy to do and it’s why credit card debt is such a problem in this country. Just making a few purchases and forgetting to pay off the balance at the end of the month can snowball into thousands of dollars of debt over time, and with high interest rates it makes climbing out of the hole increasingly difficult. But credit cards aren’t inherently bad.
For people who are able to control their spending, however, a credit card offers a way to earn rewards or cash back for the shopping you would normally do anyway. Choosing a rewards card with good terms is the first step; once you have one, you can begin making purchases on the card and earning points toward cash back, airline miles, gifts or other incentives. In a sense, the credit card company is paying you to use their product instead of the other way around.
Rewards programs are simple. For every dollar that you spend, you earn a certain number of rewards, typically points or cash back. Some cards attribute these rewards as points, while others attribute a cash value equal to a percentage of your purchase. Most rewards are between one and three percent of your cash purchase, but some cards can go as high as 10 percent cash-back on certain qualifying purchases.
In order to benefit from these rewards, just make your purchases on the credit card instead of with cash, check or debit. Pay off the purchases monthly so that you don’t carry a balance on your card. This way, you won’t accrue much interest and you can earn rewards quickly. It will also help you build your credit score, which will help you down the line when you apply for car financing or a home mortgage.
Discover Bank offers some of the best credit card rewards. Unlike its competitors Visa and MasterCard, Discover is directly affiliated with a bank. This allows Discover cards to have better rewards programs than many other cards, and you can take advantage of these rewards to earn money for shopping. Other credit card providers have attractive features as well, so it does pay to shop around and pick the best card for your needs. Check out my list of recommended credit cards.
If you do choose to use a credit card to earn rewards for your daily purchases, just be sure that you use the card responsibly. Pay off the balance in full every month and avoid making late payments; carrying a balance causes your balance to be subject high interest rates, while late payments can garner huge fees and even hurt your credit score. If you can’t afford to pay off a purchase in full, wait until you can afford to pay off the balance. One of the biggest traps you can fall into is talking yourself into a bigger purchase with a credit card and thinking you’ll pay it off in a couple of months.
Also check your card to see when the introductory offer ends and whether your rewards go down, interest levels go up or the card otherwise becomes less appealing after a few months. Not all cards are created equal and they can change over time, so what once was a great rewards card may turn out to be a dud a year or two later.
Featured Rewards Card
- $100 Bonus after you spend $500 in the first 3 months
- 50% bonus on the cash back you earn every year
- 1% cash back on all purchases
- No annual fee
- Earn unlimited cash back that doesn’t expire
- Redeem cash back anytime for any amount, even set automatic redemptions
- Personalize your card with an image of your choice
- 0% intro APR on purchases and balance transfers until November 2013.
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Filed Under: Credit Cards
About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.