How I Made Over $2,000 From Only Using Credit Cards
Credit cards are often persecuted by the personal finance world. The tale goes something like this: After underestimating how much a new piece of plastic can sway spending habits, you start swiping religiously whether you can truly afford something. You give in to the temptations of today while neglecting to save for tomorrow. Suddenly, you’re sinning your way to double-digit interest rates and a credit card balance you’d never confess to anyone.
Considering Americans have over $700 billion of credit card debt, that tale may not be a gross exaggeration for many people. However, it’s called personal finance for a reason — it’s personal. Not everyone is lousy with credit cards. Some people have enough financial literacy and self-restraint to make credit cards work in their favor. That sounds too good to be true since credit card companies stay in business by making billions of dollars every year from their users, but it can be done.
One of my financial resolutions for 2016 was to see how much money I could earn from credit cards. I was bored with the usual “save more money” resolutions and wanted to try something fun. I’ve been using credit cards responsibly since I was a teenager and have always been interested in their financial perks. If you avoid the allure of extra spending and always pay your monthly bill in full and on time, you can enjoy benefits like sign-up bonuses, cash back rewards, price-matching, extended warranties, car rental insurance, and fraud protection. One man’s trap is another man’s treasure when it comes to credit cards.
I decided to focus exclusively on sign-up bonuses and cash back rewards. I already use a couple credit cards for things like groceries and gas that amount to a few hundred dollars a year in cash back rewards, but I wanted to push the envelope to at least $1,000. The easiest way for me to get there was to take advantage of lucrative sign-up bonuses, a bonus many credit cards offer if you simply sign up and spend a certain amount within a specific period. For example, a $200 bonus for spending $500 within the first three months is one of my favorite offers.
Obviously, credit card companies are hoping the sign-up bonuses get you to use their cards for years to come, racking up numerous fees and interest payments in the process. This certainly happens more often than not, because if it didn’t, these sign-up bonuses wouldn’t be economically viable in the long run. My loyalty lies with the cards that offer the best cash back rewards for my spending. Otherwise, I only use a new credit card enough to reap the sign-up bonus and move on. Lather, rinse, repeat.
The first two sign-up bonuses toward my financial resolution were both the classic $200 cash back for spending $500. Less than three months into my credit journey, I already received $400 in cash (credit statements) for spending I would have done anyway. Due to a family emergency, I earned another $500 cash back from the Citi Premier card. That’s $900 cash back earned by the end of March, only counting sign-up bonuses.
People love to say credit cards make you spend more money, but I assure you, I didn’t let my car idle in the driveway for gas rewards. I didn’t splurge by leaving house lights on because I pay my electricity bill with a credit card. And, I didn’t buy more food than I needed at the grocery store because I knew a sign-up bonus was on its way.
Raking in sign-up bonuses was so easy I doubled my goal to $2,000. I knew I would still earn a considerable amount of cash back on bonus categories. The market is so competitive these days, credit card companies continue to offer more perks. You can routinely get 1% or 2% on all of your purchases, and 3% or more on bonus categories that rotate throughout the year. For example, the Citi Double Cash Back offers 2% cash back on all purchases (1% at time of purchase + 1% when you pay for purchases). The Discover IT and Chase Freedom cards offer 5% cash back on quarterly bonus categories like gas, restaurants, groceries, home improvement, and Amazon. Business credit cards often offer 3% on gas throughout the entire year.
I didn’t want to get burnt out so I took a break in April. In order to stay organized and avoid any late payments, I keep a spreadsheet of all my credit card activity. I track sign-up dates, required spending, bonus amounts, and bonus categories. I resumed in May by getting the Barclay Cash Forward card, which racked up another $200 in cash back for only spending $500 in 90 days. I didn’t apply for any credit cards in June, but received another $200 for $500 deal in July. I also didn’t apply for any cards in August.
September was a quiet month, but I managed to take advantage of a $25 offer a company sent me since I hadn’t used their credit card in years. I only had to spend $100 to receive a $25 gift card of my choosing. In October, I was declined for a credit card for the first time in my life. I attempted to snag another $200 for $500 bonus, but I think I was declined since I already received a similar offer from the same company. No worries, there are plenty of fish in the sea. I ended my experiment with a $500 business card offer in November.
The total amount earned from credit cards:
- Sign-up bonuses: $1,800
- Cash back from spending: $584
- Random gift card offers: $45
- Grand total: $2,429
Was making $2,429 with minimal effort worth it? Yes, to me. Should everyone do this? No. Not only do you have to be financially responsible, you have to make sure that opening new lines of credit won’t affect your near-term plans. For example, mortgage lenders may become wary of your financial habits if you have too many new credit openings. You also need to be organized enough to pay your credit cards on time so you avoid late fees. Let’s take a look at six credit card tips you should heed, even if you don’t plan to play the rewards game.
1. Don’t look at credit cards as a way to keep up with the Joneses
View credit cards as the plastic version of money sitting in your bank account. If you can’t pay off a credit card in full every month, don’t even think about playing the rewards game. Double-digit interest rates will easily wipe away your cash back rewards.
2. Know thy self
Did I mention you need to be financially responsible? The key to the credit card game is not spending more than you normally would. You also need to know what you normally spend money on to maximize your cash back. A restaurant rewards card is practically useless if you never dine out, and you certainly don’t want to start eating out three times a week just because of a new credit card. Airline rewards go further than credit statements, but I hardly ever fly.
3. Watch the details
Annual fees aren’t necessarily a deal-breaker, but I try to avoid them when possible. Sometimes the annual fee is worth it for people who travel. For example, the new Chase Sapphire Reserve has a hefty $450 annual fee, but the travel rewards and sign-up bonus more than compensate for it. Keep in mind that credit card companies usually start your required spending period for sign-up bonuses from the time you are approved for the card, not when you actually receive it in the mail. Fun Fact: The Chase Sapphire Reserve card was so popular the company ran out of the metal to make the card, and is estimated to reduce JPMorgan Chase’s profit by $200 to $300 million in the fourth quarter. Over the past six years, major issuers have given out over $100 billion in rewards.
4. Do your research
The number of credit cards available are endless. Just when you think you’ve seen them all, a new one comes out to better compete for your business. Retail credit cards often aren’t worth the hard credit pull, but some stores like Best Buy, Target, and Costco offer attractive perks. Yelp even has a cash back program for diners. Check out Doctor of Credit for the latest credit card news.
5. You don’t always have to cancel a credit card you don’t want
Playing the rewards game can lead to an incredible amount of credit cards. You may feel the need to cancel the cards you don’t plan on using pass the sign-up bonus, but this could lower your credit score. Instead, if there’s no annual fee, cut up or store the cards in a safe place. After a year or two of inactivity, you’ll probably receive a notice from the company that the card will be terminated unless it gets used soon, but you may also receive special offers to get you to use the card again. Credit card companies hate losing customers.
6. Save money and get your credit score for free
It’s now common for credit card companies to provide you a free credit score every month. It won’t be the exact score lenders use since there are many different credit score models, but it will usually be close enough to give you a good idea where you stand. If you want to see your credit report, which is used to help calculate your credit score, visit www.annualcreditreport.com for your free report.
Follow Eric on Twitter @Mr_Eric_WSCS