Today is a special day for Monkey Free Me, because today is our first guest post. Josh Wilson is the creator of Family Faith Finance. He is a family man with three kids, and has his priorities straight putting Family and Faith in front of Finance. He writes on a whole range of family finance topics, and you should definitely check out his site for some great ideas and advice. So enough from me, enter Josh Wilson:
How to Maximize Your Families Credit Card Rewards, Without Getting Yourself in Trouble
By Josh Wilson
You’ve probably heard stories about people who have paid for entire vacations using nothing but rewards points; or families that managed to rack up thousands of dollars in annual cash back rewards. These are not urban myths – they’re absolutely true; but, when you take a closer look at how they accomplished these feats, you’ll realize that it takes a lot of planning, tracking and discipline. For some, maximizing credit card rewards is an obsession, where every financial decision centers on how to maximize their rewards. However, unless you want to get into the Guinness Book of World Records, there are many ways to maximize your rewards by just being you.
Why More Credit Card Companies are Offering More Lucrative Rewards
Fortunately, the credit card companies are making it easier for you to pad your rewards accounts. In the last few years, competition among credit card companies has grown fierce. Most have done all they can to compete by lowering APRs or fees as low as they can go. The only way they can compete now is to beef up their rewards programs. The name of the game is to attract the big spenders, Although most people who are attracted to rewards programs pay their balance in full each month (because, to do otherwise would negate the benefits of rewards), they generate a substantial portion of their revenues from merchant fees. The more a cardholder spends the more revenue they generate. Also, many of the top rewards cards charge an annual fee, which is how some of the card companies offset the costs of their rewards programs.
How to Maximize Your Rewards Without Getting in Trouble
Done right, there is only upside for you if you embark on a strategy to maximize your rewards. If you make the same mistakes as many people do, it could end up costing you much more than you get out of it. The biggest mistake people make is to chase rewards by spending money they didn’t budget for, which usually leads to carrying a balance because they couldn’t afford the purchase to begin with. They’re not only out the interest charges on their monthly balance; they are also out the money they shouldn’t have spent. Needless to say, actively pursuing rewards points should only be done by people with good spending habits and the discipline to manage their credit wisely. Otherwise, it can be a losing proposition.
Here’s how to ensure you stay out of trouble in your pursuit of credit card rewards.
Treat Your Credit Card Like a Debit Card.
The biggest reason people get into trouble with credit cards is they use them to purchase things they can’t afford. Put another way, if you don’t have the cash to pay for something, you can’t afford it. If you carry that rule into your pursuit of rewards, you should be able to stay out of trouble. Stick with a strict spending plan and never use a credit card to purchase anything that is not in your budget. Between groceries, gas, utilities and other budgeted items that can be paid by credit card, there is enough in your spending plan to rack up serious rewards each month.
Keep Track of Your Credit Card Spending
With online account management available for most credit cards, there is no excuse for not knowing where you are with your credit card spending. Even if you think you are spending within your budget, you should check your credit card spending at least weekly to ensure you are. The more often you check your credit card spending, the easier it is to make corrections in your budget if needed.
Pay Your Credit Card Bill in Full
This bears repeating. If you don’t pay your bill in full each month, you will negate the benefits of your rewards. In fact, you should get in the habit of paying your bill before the due date. If you can’t pay your bill in full, you need to arrange your budget to able to pay it off as soon as possible. When you start paying 15% or more interest on a balance, the 1% to 3% cash back is almost meaningless. If the problem persists, you should consider getting out of the rewards game.
A Word about Sign Up Bonuses
Some people get so obsessed with maximizing their rewards they will actually start applying for credit cards that offer sign up bonuses. Make no mistake; some sign up bonuses can be very lucrative, adding thousands of points to your account just for spending money. However, adding credit cards for the sake of more points is fraught with danger. While adding credit score can actually help your credit score by decreasing your utilization ratio, it can hurt it temporarily by adding hard inquiries to your report. Unless you have the capacity to effectively manage your credit card spending, it is too easy to let it get out of control. Managing multiple rewards program requires a lot of planning and attention. If you’re not willing or able to give it the time and attention it requires, it is probably not worth the effort to begin with.