First, shift monthly spending from cash and checks to credit
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Dear Cashing In,
Is it a good idea to use a credit card for everyday purchases and for making large payments such as a mortgage and car payment, just to get the rewards or miles? We pay the balance on our cards every month, are current on the mortgage and car, and have no other debt. – Jeff
With reward cards, the more you charge on them, the more rewards you receive. For that reason, yes, it is a good idea to charge whatever you can on your cards.
You should try to follow these guidelines:
- Don’t use rewards as an excuse to charge more. Credit card issuers know that the ease of using a card makes it more likely that you will spend money. Don’t be tempted to spend money on things you don’t need just because you receive rewards for charging. Remember that most rewards you receive will be in the 1 to 2 percent range. In other words, it’s not worth spending $100 for the purpose of receiving $1 to $2 in rewards.
- Charge only what you can afford. Instead of spending more, you should think of using a rewards card for shifting the way you spend. Instead of writing a check from your no-rewards checking account, can you charge the expense? Instead of paying cash, can you put the expense on a card? If you can shift your spending from cash and checks to credit, you will increase your rewards and your overall level of spending will stay the same.
- Pay off your balances in full and on time. This is crucial, and it sounds as though you are already employing this strategy. If you carry a balance on your credit cards, any rewards that you might earn will quickly become dwarfed by what you are paying in interest. If you have credit card debt, find a card with a low interest rate, pay off the debt and then start focusing on reward cards.
- Don’t pay to charge. Sometimes, if you try to charge everything, you will find that some merchants want to add an extra fee for allowing you to use a credit card. If it is a small amount, like a dollar or two, I usually agree. But if it is a percentage of what you are spending, such as 2 percent, then that extra fee is not worth it, because you will likely negate any reward with the extra spending.
For instance, you asked about mortgages and car payments. Ordinarily, banks do not allow you to pay for those expenses by credit card. There are services that you can find online that will allow you to pay those and other bills on credit cards, but you will find that they typically charge 2 or 3 percent. That fee reflects their cost of processing your credit card. It doesn’t make sense for you to spend an extra 2 percent to earn a reward of 2 percent.
On other big expenses, though, charging on your rewards card can make sense, assuming you can pay off the credit card bill. Planning to write a check for a new washing machine? Charge it instead, and write that check to the card company. Buying a new car with at least some cash? Ask if the dealer will allow you to charge a portion of the cost.
There are other strategies you can use for big expenses. For instance, if you are making home improvements and expect to spend a lot at a major chain such as The Home Depot or Lowe’s, and you have a card that gives you extra points at the supermarket, see if the supermarket sells gift cards for those home improvement chains.
Or if you like giving restaurant gift cards for the holidays, see if you can buy them at a store using a card that gives bonus points at that store.
For most people, there are plenty of ways to increase the rewards by making minor changes with the cards and expenses they already have.