Using a credit card requires smart spending and budgeting to avoid the dangers of getting into debt or paying hundreds of dollars in interest and fees.
However, when you shop carefully and use your credit card strategically, you can take advantage of rewards, points and other perks to save or even earn money. And you can do it without getting into debt as long as you follow two basic rules: charge only what you can afford and pay your balance in full every month.
Learn how careful credit card use can help you earn, rather than lose, money.
Transfer Balances to Reduce Interest
If you’re currently carrying a balance on a credit card with a high interest rate, you may be able to save hundreds of dollars by transferring that balance to a credit card with a lower interest rate.
Taking advantage of a 0% APR balance transfer offer will give you time to pay off your balance without accumulating interest. For example, you can save almost $400 by moving a $3,000 balance at 17% to a credit card with a 0% APR for 12 months.
Just be sure you can pay enough each month to bring your balance back down to zero within the introductory period. Otherwise, you’ll end up losing money by still paying significant interest.
Use 0% Purchase APR
Many 0% introductory rates are offered only with balance transfers. However, some credit cards offer 0% introductory APR on purchases as well. This means that during the offer period, any purchases you make are also subject to 0% interest.
If you have a big-ticket item to purchase—new furniture, a medical procedure, or a vacation—using a credit card with a 0% APR will let you break up the purchase into multiple payments without having to pay interest.
Pay With a Cashback Credit Card
Cashback credit cards let you accumulate cash rewards on your credit card. If you can use your credit card to pay for most of your expenses, not just those purchases that earn the most rewards, you can max out your cash earnings.
For example, if you spend around $3,000 each month on bills and other expenses, you can earn $360 a year on a card that pays just 1% in rewards.
The caveat here is to make sure you are able to pay off your card balance at the end of each month. Otherwise, the interest you are charged will quickly outstrip any cashback you earn.
Skip the Car Rental Insurance
Using the car rental agency’s rental coverage can increase the price of your rental every day. However, depending on the credit card you use, that extra insurance may be unnecessary.
Most major credit cards provide car rental insurance as long as you decline the coverage offered by the car rental company and pay for your rental with your credit card. This can save you tens or hundreds of dollars every time you rent a car.
Always check the terms and conditions of the insurance your credit card company offers to make sure there are no gaps in your rental car coverage.
Redeem Cashback for a Gift Card
Many credit cards partner with retailers to offer gift cards with bonuses. You can maximize your rewards by redeeming your cashback for one of these gift cards.
For example, you may be able to redeem $20 in cash rewards for a $25 gift card. If you choose retailers that you already shop with, then you are getting $5 for free.
Use the Discount Mall
Many credit card companies have a “discount mall,” or a set of national retailers that they partner with to offer regular discounts to cardholders.
It takes a bit of planning ahead, but you can save money on dining, movie tickets, flowers and more by making the purchase through your credit card issuer’s discount mall. You can usually find a list of these stores, along with how much you can save, on your credit card company’s website.
Earn Free Travel or Hotel Stays
Travel rewards credit cards will allow you to earn miles or points that you can redeem for a free flight or a free hotel stay. You can use the free flight for an annual vacation, holiday travel, or weekend getaway.
Register for rewards membership with the airlines or hotels associated with your rewards card for even bigger savings.
Even if you don’t have a travel rewards card, your credit card’s discount mall may offer deals with certain car rental agencies or hotels. Always check there before making any travel plans.
Shop on Retail Cardholder Discount Days
If retail credit cards are the only ones in your wallet, you may be losing money because of high interest rates and limited use. However, if you only use retail cards occasionally, you can take advantage of their rewards programs.
These cards often offer perks like special discount days for cardholders. Read through your rewards program or call your card issuer to find out if your retail credit card offers special cardholder discount days. And remember to only sign up for retails cards at stores where you already frequently shop.
Look for a Sign-Up Bonus
Don’t open a credit card just for the sake of it, or you could end up damaging your credit. However, if you are already planning to open a new card, look for one with a sign-up bonus.
Bonuses range from cashback to free hotel stays and points you can use for airline tickets. Earning the spending bonus usually requires you to spend a certain amount on the credit card within the first few months of having the credit card. If you can meet that requirement and still pay off your balance, you can earn the bonus without also paying extra in interest.
Extended Warranty Benefits
Purchasing the extended warranty on electronics can help you avoid expensive repairs or replacements. However, these protection plans are often pricey.
Some credit cards automatically offer an extended warranty on electronics purchases at no extra cost. Check your credit card’s documents before you shop to learn whether they offer this coverage and what you have to do to take advantage of the benefit.
Keep your receipt, with proof that you used your credit card to make the purchase, for the duration of the warranty so you easily can submit a claim in the event of a product failure.
Take Advantage of Price Adjustments
Whenever you shop, you risk purchasing an item, then finding that it’s marked down to a lower price a few days later. However, credit cards with price protection benefits may refund you the price difference.
The ease of getting the benefit depends on your credit card. Check your policy for how you can apply for a refund and how long you have to make a claim.
Pay No Foreign Transaction Fees
Most credit cards charge a foreign transaction fee, usually 3% of the transaction amount, on purchases you make in other currencies. If you travel internationally, these fees can add up quickly.
Some cards, however, waive the foreign transaction fee. If you travel out of the country frequently, you can use a card with this feature for significant savings.
Always call your credit card company to notify them before you travel out of the country. Otherwise, your card may be locked as a form of fraud protection.
Don’t Carry a Balance
None of the benefits of the card will be worth it if you carry a balance and pay finance charges. Pay your balance in full, on time each month. Otherwise, the interest and late fees you end up paying may cancel out any rewards or savings you might earn.
Frequently Asked Questions (FAQs)
Which credit card has the best rewards?
Determining the best rewards card for you comes down to the types of spending you tend to do most and what kind of credit card rewards you prefer. Some cards, like the Chase Sapphire Preferred, are ideal for general spending to earn more cash back. Others, like the Bank of America Travel Rewards Card, are best suited for those who travel frequently.
How do you maximize credit card rewards?
To get the most out of your credit card rewards, it can be helpful to have a few different types of rewards cards. Try combining a good travel rewards card, an all-around cash-back card, and one with special rewards categories that fit your spending habits.
How do you redeem credit card rewards?
Each rewards card has its own set of options for redeeming rewards. You may be able to have cash-back rewards direct-deposited into your bank account or sent via paper check. Some cards give you the option to redeem the rewards for a credit toward your balance. In some cases, you may be able to spend the rewards directly with various online vendors. Review your rewards card’s terms of service for more information about redemption options.