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Maximum Return On Your Credit Cards
By: Francis Kier
There has been an explosion of credit cards that specialize in certain benefits
over the last five years; reward points, cash back, 0% transfers, credit
monitoring, discount gasoline, money-market savings, etc. So how do you get the
most return from your card, particularly when their plans change?
(Presuming you never, ever carry a credit card balance – interest charges and
potential fees will more than consume any side benefit that a card can offer.)
In the old days, the big benefit was airline miles. Let’s see how well that
works out. The average airfare for a ticket that was paid for with credit card
airline miles is about $400. And the average program requires 25,000 to 35,000
miles to be credited a free ticket. Since miles are normally accrued
dollar-for-dollar, the average benefit is between 1 to 1.5% of what you spend.
Now we are starting to have something to compare. If you get an offer for a 1%
cash back credit card, you’d be slightly better off getting the airline miles.
But in my opinion, the many cards offering up to 5% cash back are the best deal,
as long the fine print lines up. First, there are normally limitations on the
shops where the 5% applies. You want a card that applies the 5% to where you
spend the most of your monthly income. The credit card industry calls these
‘everyday purchases’, such as groceries, drug stores, and gasoline, but exclude
warehouse clubs. You should get a card with the widest number of retailers where
you commonly spend money. Or, get a specific-store card for those large one-time
purchases. For example, if you are buying new kitchen appliances from Sears,
apply and use their card for the purchase and you normally get 10% off. You can
cancel it later when it has a zero balance.
The next 5% cash back problem is an annual limit. Citi Dividend credit card
limits your annual earning to only $300. If you have some big purchases, you may
have spent $5,000 on your credit card in the first month, and you’ve hit your
cash back limit already. So guess what, you are going to stop using that card
and start using a different 5% cash back card until you’ve used up that limit as
well. Use them up and move on. American Express currently has a card called Blue
Cash for bigger spenders. It offers only 1% cash back until you spend $6,500,
and then it pays 5% cash back until you’ve spent $50,000. But there aren’t
nearly as many AmEx merchants as Visa/Mastercard merchants. (Again, AmEx and
others may have exclusions like purchases at warehouse clubs).
Getting the most from your card is like going into battle: you can have a great
plan in the beginning, but once cardholders start exploiting loopholes and
creating unintended consequences, the card companies change their policies, it
goes back and forth continually. So read all the fine print before applying, and
squeeze some extra money from your credit card purchases this year.
About the Author:
Francis Kier has an MBA in finance and shares his two decades of experience with
investing and personal finance. More of his articles are available at http://investing.real-solution-center.com.
Credit card comparisons are made easy by directory websites such as http://www.allstarcreditcards.com.
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