You might have come to Cards and Points because you’ve heard that people earn hundreds, or even thousands of dollars per year in rewards from their credit cards. Or you might have seen someone posting on social media about staying in a luxury hotel or traveling in business class using their credit card points. And you probably want to learn how.
You’re in the right place.
Here’s how most people earn credit card rewards, a few pitfalls to avoid, what is possible in the future, and how to get started.
How do most people earn tons of credit card rewards?
Here are the most common ways that I and others earn tons of credit card rewards.
Credit card welcome bonuses
Many banks will give you a generous welcome bonus to sign up for a new credit card. To earn a bonus, you must apply, be approved, and spend a certain amount on a new credit card. Some bonuses can represent as much as 40% effective cash back on your first several hundred dollars of spending. Other bonuses can be worth $900 or more. Every month, we publish the best credit card welcome bonuses on our site. Welcome bonuses are by far the fastest way to earn a ton of credit card rewards.
The gotchas: Most credit card welcome bonuses require you spend a certain amount within the first few months to earn the welcome bonus. If you’re earning credit card rewards through welcome bonuses, make sure that you are certain you will spend that amount. Also, if you’re signing up for a credit card with an annual fee, make sure that you’re getting value out of that card if you keep it in the second year. Finally, opening up a bunch of accounts and going after welcome bonuses too aggressively can hurt your credit score.
Category spending
If you don’t want to always be applying for new credit cards, consider getting cards that offer more generous rewards where you spend the most. There are credit cards that can earn you 6% (and sometimes more) on groceries. Some credit cards offer 2% everywhere. A few credit cards offer 5% rewards in rotating categories or 5% rewards at places like Target, Finally, there are no-annual-fee cards that give you 3% rewards on gas, travel, transit, and many more categories.
The gotchas: There is little downside to optimizing your wallet with cards that offer category spending bonuses. The only thing to remember is that this strategy has diminishing returns. At some point, earning a marginal 1% on your Netflix subscription isn’t worth carrying an extra card.
Shifting spending into category bonuses with gift cards
Many gas stations, grocery stores, and office supply stores sell gift cards. You might not be able to get more than 3% cash back at Starbucks, but if you buy Starbucks gift cards at a grocery stores, you could be earning at least 5-6% cash back. Think about the places where you usually shop. Purchasing a gift card at a merchant that earns a higher rate of cash back can juice your cash back rewards. Using this strategy, it is possible to earn close to 5% rewards almost everywhere.
The gotchas: Around 10% of gift cards get lost or never get used. That’s the reason why merchants love selling them to you. If you’re going to use a gift card strategy to shift your spending, be sure that you’re only getting gift cards to places you shop regularly. And be sure to use them promptly. Also, remember that, if a store goes bankrupt, its gift cards typically become worthless, often overnight.
Use merchant and card-linked offers
Chase, Bank of America, American Express, Citi, and other banks can target you with card-linked offers that give you rebates on things you might buy anyway. These rebates can sometimes be 40% or more of your purchase price. If you add these offers to a credit card that you already have, you can get additional rewards on purchases you would have made anyway. These card-linked offers can be added to your existing cards through your bank’s portal.
A word about credit card debt
If you are carrying credit card debt, the benefit you can get from paying off your credit cards is far greater than you can earn in credit card rewards.
It comes down to math. If you are carrying a $1,000 credit card balance and paying a 27% APY interest rate on it, you are paying $270 in interest every year. If you’re rolling interest charges into your balance, you’re paying even more than that. Focusing on paying down your credit card debt will get you far more value than credit card rewards ever could.
One tool that can help you get out of credit card debit is a 0% APR balance transfer promotional offer. A balance transfer takes your balance on one credit card and shifts it to another. Many banks offer 0% introductory balance transfer offers to new customers on some of their cards. Temporary relief from interest can mean that you can use the money you otherwise spent on interest charges. We don’t currently cover balance transfer offers on this site, but there is an excellent article at The Wall Street Journal by a highly-regarded expert (I wrote it) about the best balance transfer credit cards.
Bottom line: If you are paying interest on credit card debt, you will get the greatest benefit from using 0% balance transfer offers to pay off your credit card balance.
Finding the value beyond the points
As you start out earning more credit card rewards, your focus on cash rewards will put more money in your pocket, but there is plenty of value to be had by learning to use credit cards and accessing their benefits. Here is a small taste of what is out there. Many of these benefits are available simply for holding a no-annual-fee credit card.
- Extended warranty benefits that can extend manufacturers’ warranties on things you buy by up to a year, for free.
- Car rental collision damage waiver insurance that can cover loss or damage to a rental car so that a fender-bender on vacation doesn’t have to hit your auto insurance.
- Cell phone protection benefits that can cover your phone if you accidentally break it or if it is stolen.
- Travel insurance benefits that can cover the cost of pre-paid travel arrangements if you miss your trip in certain uncontrollable cases.
- Travel delay benefits that can pay for a hotel room if your flight is delayed overnight.
- Access to airport and airline lounges where you can get free food, drinks and expedited customer service.
- Ways to use travel points to travel in first class and business class around the globe or stay in luxury hotel suites on the cheap.
How to get started
If you’ve decided that you want to take the plunge into earning credit card rewards, here are three easy steps to get you started.
Step 1: Understand your current spending
How much you spend naturally will determine which credit card welcome bonuses are available to you and which credit cards make the most sense for your spending patterns. At a minimum, know how much you spend each month on things that can be put in credit cards. Beyond that, here are a few questions that can be helpful to answer:
- What are your biggest budget items?
- What things do you pay for with cash, a check or a bank transfer that you could pay for with a credit card?
- How much do you spend at grocery stores? Gas stations? Office supply stores? Home improvement stores? On dining? On Travel?
- When do you have big periodic expenses due, such as car insurance, home insurance, or a planned large purchase.
Step 2: Make sure that your credit is in order
Step 3: Pick one easy welcome bonus and go for it
Once you have a picture of what you spend in a month, go to our monthly post of the best credit card bonuses. Find a credit card that has spending requirement that you can easily meet. If you only spend $200 a month on credit cards, pick one of the no annual fee cards that offers a bonus after spending $500 within 3 months ($166/month). Here are a few other things to consider:
- If you are new to credit card welcome bonuses, look at only cards with no annual fees. For many people, credit cards with annual fees can provide value well in excess of the annual fee. If you’re just starting out, this is complexity that you don’t need to deal with.
- Look at only the welcome bonuses where you can easily meet the spending requirements. If you only spend $200 a month, don’t pick a welcome bonus with a huge spending requirement. Go for a credit card that will give you a $200 bonus after spending $500 within the first three months.
- Apply for the card, put all of your spending on that card and enjoy your welcome bonus.
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Cards and Points can be your go-to source for information about credit cards and credit card rewards. If you want to find the best welcome bonuses, we’ll have that. If you want to know more about credit card rewards programs like ThankYou Points or Capital One miles, we have that. We’ll give you what you need to research a card in our card overviews. We’ll provide plain-english overviews of credit card benefits. Finally, we’ll make sure that we keep things to the point.
That’s all for now! Now go start earning some credit card rewards.
