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How To Make Your Credit Card Work For You

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By Wes Moss. Financial Planning Expert

Wes Moss, author of the recently published guide to retirement, You Can Retire Sooner Than You Think. is the chief investment strategist at Capital Investment Advisors (CIA). CIA manages more than $1 billion in client assets and is one of Georgia’s largest private investment firms. He is also a partner at WELA Strategies, an online wealth management and financial education firm.

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Shopping with a credit card is safer than with a debit card, and it can also offer better rewards.

Credit Card Cashback Rewards

If you are going to use a credit card, why not earn money while you spend money?  There are a number of credit card companies that now offer cashback rewards when you use their cards. When you spend money on a credit card, the retailer then typically owes the credit card company about 2% of your purchase. Cashback credit cards allow you to get a rebate from your credit card company for some or all of the money you are making them by shopping.

With that in mind, think through your personal spending habits to figure out if the card you currently use is giving you enough bang for your buck. Your goal should be to get that full 2% back from the bank .

I was recently at a financial bloggers conference- FinCon14 - where I met Nick Clements.  Previously Nick was the head of a credit card company, but has now switched to the other side of the industry and started a site called Magnify Money. This site allows you to easily compare many different cashback rewards credit cards based on your spending habits.

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On top of this, you can also compare cards that allow balance transfers, companies that offer personal loans, and even compare different savings and checking accounts. I would highly recommend that you head over to his site and play around with the different tools they offer to be sure that you are taking advantage of your credit card company or bank and not the other way around.

Banks generally dislike cashback cards because they can’t adjust the rewards like with a points system. But keep in mind- before you run out to sign up for a cashback card, remember that these companies make more money off you if you don’t fully pay off your credit card each month than you can make off of them with their rewards program. Cashback credit cards are best if you always pay off your credit card in full each month because they typically have high interest rates. If that’s not you, it’s best to look into low interest credit cards.

It’s all well and good to hear about best practices for getting cashback credit cards, but it is important to see the numbers to be really be convinced. Let’s take a look at the math behind these cashback rewards programs.

Real Life Cashback Rewards Examples

Example A: If

you are planning to spend $5,000, you can make the purchases in cash or on your debit card, and walk away with just what you purchased. On the other hand, you could spend that $5,000 you were already planning to use, and if your credit card offers a 1% cashback reward you will receive $50 back. That’s essentially a free $50! Wouldn’t you rather have $50 over zero?

Example B: Now let’s say you get a little savvier and look at your different cash rewards options. You see the Citi Card is offering a 2% cash rewards card where you get 1% when you make the purchase and the other 1% when you pay it off. You pay off your card every month, so instead of spending $5,000 you’re really spending $4,900. You walk away with $50 more than if you had gone with your traditional 1% rewards card and $100 more than if you had just used cash!

Example C: There are also cards that offer different reward percentages based on categories. For example, Bank of America offers a credit card that gives back 3% for gas, 2% for groceries and 1% on everything. There are other cards that offer a really high percentage back, like 5%, in certain categories, but the categories switch regularly and require the user to be disciplined in paying attention to the adjustments and fine print. To find a card (or even several if you want to have a specific gas card, grocery card, etc.) that gives you the most bang for your buck you have to take a step back to look at your spending habits and ask yourself how willing you are to continually monitor and update your card preferences.

The sooner you start researching cashback rewards cards, the sooner you will be able to take advantage of the money you are spending money and will set yourself up for future success.  And again, I encourage you to take at Nick Clements' site.  It will show you the total rewards you can walk away with at the end of the year, and these are numbers that add up!  We all have changing shopping patterns from month to month, but it’s pretty unlikely you’re ever not spending money at all. Take advantage of the cashback rewards to make your credit card work for you.

Wes Moss is the Chief Investment Strategist at the financial planning firms Capital Investment Advisors and Wela. He is also the host of the Money Matters radio show on WSB Radio, and host of the TV show Atlanta Tech Edge on Atlanta’s NBC affiliate. In 2014, he was named one of America’s top 1,200 financial advisors by Barron’s Magazine. He is the author of several books including his most recent, You Can Retire Sooner Than You Think  - The 5 Money Secrets of the Happiest Retirees , which has been one of Amazon’s best-selling retirement books in 2014. 

Are you looking for some financial planning tools?  Check these out:

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