Taking Advantage of Credit Card Rewards | Financial Flexibility #009
Many young people see credit cards as daunting. They sign up for random cards and use them the same way they would cash or a debit card. The main reason for owning and using a credit card is to help build your credit score, but many people young and old overlook the reward angle of their cards. This article will go over 1 example of how you can take advantage of your credit cards.
Understanding Rewards & Applying Them Accordingly
One of the most popular credit cards is the American Express Skymiles Card. I started using this card a few years ago and since then I have not paid for a flight out of my own pocket. I've been able to redeem my skymiles and travel "for free".
I've been able to accumulate a large number of miles through referrals, spending efficiently, and taking advantage of bonuses. When you refer someone for the card you get 15,000 bonus miles (round-trip to Miami). When you read the fine print you realize that certain purchases reward you with 2x or 3x miles. $100 spent = 300 miles earned! When you scroll through the offers tab you can find cash back purchases from some of your favorite retailers like Ray-bans or Barnes & Nobles. Taking advantage of everything the card has to offer means you're maximizing your money and being rewarded for spending it!
Stacking Rewards
Here's where the fun begins. I'm going to lay out a scenario using credit card rewards and how you can stack rewards and never have to pay out of pocket again. I own an Amex Platinum Business Card, Amex Platinum Skymiles Card, and Capital One Savor Card in this scenario.
As an owner of the Amex Platinum Business Card I get to choose 2 categories to receive 4% cash back on each year. Purchasing of advertising is included in these categories (HUGE WIN FOR ME). Each calendar year I can receive 4% cash back on $300,000 worth of purchases in my 2 categories. That's $12,000 cash back every single year.
As an owner of the Amex Platinum Skymiles Card I get 5x miles on flights/hotels booked through the AmexTravel.com website. Plus I get unique upgrades like a free $100 resort credit and free room upgrades when I check in. 5x miles on a $12,000 vacation = 60,000 miles earned.
While I'm on vacation I want to spend some money on restaurants and entertainment. In this example let's say I spend $1000. As an owner of the Capital One Savor Card I get unlimited 4% cash back on all restaurants/entertainment purchases. That's $40 cash back (couple drinks at the bar for free).
Travel For Free For Life
The biggest thing to takeaway from this is, "If I'm going to spend the money, I might as well be rewarded for it". Credit cards build your credit but they also provide you with endless rewards if you're willing to take your time and do some research.
If you followed the example above you'd be able to take a $12,000 vacation "for free" 1 month and then you'd get 60,000 miles to book another round-trip flight wherever you'd like! Maybe even first class somewhere (if you know me, I ONLY fly first lol jk jk). You literally should never have to pay for a flight out of your own pocket ever again.
Plus any spending you want to do while on vacation should go on your Capital One Savor Card so you can get your 4% cash back! That's a 4% discount on every single restaurant you go to!
The point is, credit cards can be your friends!
Disclaimer: Always make your credit card payments on time, do not open up too many credit cards at any given time, do not apply for a new credit card if you are struggling to pay off existing debt, allow your credit score to build over time before adding new cards, try to use 30% or less of your available credit at any given time, and again ALWAYS make your payments on time. If you follow these "rules" you should see your score increase gradually every quarter/year.