Believe it or not, I made $600 last year just by using a credit card to make purchases. It may sound counter intuitive, but rest assured it is most certainly possible and in fact easy to make money by using a credit card. Keep reading to see how I accomplished this.
Credit card rewards programs are key.
Most credit cards offer some kind of rewards program where you receive points/credits for every dollar you spend. These points can be used to get all kinds of different consumer products, gift cards, vacations, and cash back.
The best reward to choose is cash back. Furthermore, you should opt to receive the cash back as a credit towards your balance. This means the cash you are rewarded will go towards paying off your total balance. While it’s not very exciting to use the cash back towards your balance, it’s a great practice to get used to, because at the end of the day you need to pay off your credit card in full to avoid paying interest.
If you have yet to build a credit history and this is your first credit card, the rewards program will only be so good. You can expect to get around 1% cash back for all purchases. This means for every $100 you charge and pay off each month you get $1 back. This doesn’t sound like a lot, but it adds up over time.
Related: Make Your Money Work For You
An example of the benefits of cash back rewards.
Let’s assume you pay your balance off in full every month, receive 1% cash back for all purchases, and don’t have an annual fee. Now let’s say you charge $1,000 per month to your credit card. At a rate of 1% cash back you will receive $10 cash back every month, which is $120 per year.
What I am trying to show in this example is that if you use your credit card responsibly, you are literally getting paid to spend money. By using your credit card instead of cash you are earning an extra $120 per year.
The rewards get better.
Once you have built a good credit history, you can get cards with even better rewards programs. My card of choice is the American Express Blue Cash Everyday Card, which has no annual fee and gives 3% cash back on grocery purchases, 2% cash back at gas stations and select department stores, and 1% cash back on all other purchases. This is actually the card I used to get $600 cash back last year.
Always pay off your card in full.
Keep in mind that the scenario above will only work if you are paying off your credit card in full every month. If you neglect to pay off your balance completely, you will be paying interest on your total balance. This will ultimately result in you spending more for each purchase than you needed to, canceling out any rewards you may receive.