Save--and Even Earn--Money with a Credit Card
Making Plastic Work for You
For many years, a little piece of plastic controlled Beth MacKenzie’s life. "When I was younger, I bought things that I honestly could not afford,” the 30-year-old admits. "I racked up a lot of credit card debt trying to make up for my lower income.” As she struggled to pay off the balance, the interest compounded, leaving her with significantly more debt than she anticipated.
Today, Beth is in charge of her finances and makes her credit card work for her, not against her. Her then-fiancé traveled frequently for work, so the couple opened a Hilton Honors credit card because of the hotel chain’s generous rewards program. Wary of the high interest rate, Beth paid the balance in full each month. "But by the end of the year, we had saved up enough Hilton Honors points that we were able to stay at the 5-star Rome Cavalieri hotel in Rome, Italy, for our five-day honeymoon… for free!” she says. "It was fantastic!”
Charge Wisely, Earn Benefits
Rewards programs are a fun, easy, and--potentially--free way to earn perks like airline miles, gift cards and even cash. Discover’s rewards program allows card members to earn "cash back bonuses" that can be collected as gift cards, direct deposits, charitable donations, and merchandise, including computers, cameras, and other electronics. Visa, American Express, and MasterCard offer similar programs, but each company structures their points system differently, so shop around for the deal that fits your lifestyle.
For example, Scott D., a 35-year-old from Boston, loves to travel, so he signed up for an American Express card. "I've 'financed' trips to Puerto Rico, Miami, Los Angeles, and San Francisco – airfare, hotel, and rental car – with points accumulated on my American Express Gold card,” he recounts. Scott travels for work, and he charges all his expenses to his American Express card. He also uses the card to make personal purchases. However, Scott refuses to charge something he can't afford just to earn points.
"After years of climbing out of debt leftover from college, I only charge items I'm able to pay off the same month,” he says.
To make the most of your card’s rewards program, consider following Scott’s example and using the credit card as your primary spending tool. Statistics show that it’s easier to overspend when paying with a card versus cash, so exercise restraint. But if you can put everything on one card and pay off the balance each month, you’ll earn points faster, increase your credit score, and budget finances with ease.
Sabrina Garibian, a 26-year-old from Philadelphia, is "obsessed” with her American Express because of its perks. Sabrina charges all of her expenses to the card and pays off the balance at the end of the month. "The key is never carrying a balance; I treat my American Express card like I’m spending cash. I’ve never been charged interest as a result,” she says. With the points accrued by making everyday purchases, Sabrina earned a free premium blender, a fancy camera, and travel upgrades on her honeymoon. Furthermore, Sabrina believes keeping all her expenses on one card makes it easier to track her spending and readjust her budget.
The best reward? Cold, hard cash. Ryan Sullivan shopped around for the best cashback program for his spending habits and now receives up to $3,000 a year in bonuses from his Chase Ink card. "It’s a great system not only because I get cash back, but also because it couldn’t be simpler to manage. I pay one bill each month in addition to my mortgage!” says the 28-year-old Utah resident.
The Fine Print
When comparing rewards programs, be sure to note whether the company caps off rewards at a certain point or if points expire. Additionally, ask the credit card company if their card charges a yearly fee. If so, crunch the numbers to determine if the fee is worth the points you anticipate you’ll earn or ask the credit card company if they’ll consider waiving the fee.
Pay the Entire Balance Each Month
Rewards programs are great, but they’re worthless if you don’t pay the entire balance off your credit card each month. If you fail to pay the balance, the interest will compound, creating more debt. For example, if you have a balance of $500 on a card with 18% interest and pay the $15 minimum each month, it will take 47 months to be rid of your debt – and you’ll pay an additional $198.34 in interest. To see what paying the minimum really costs, check out this online calculator.
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