October 19, 2023
Looking to optimize your finances while maximizing your rewards? Discover which expenses are best to charge to your credit card and which to avoid.
If you could have a superpower, what would it be? Flight? Invisibility? Sometimes having a credit card can feel like a power. But, as any superhero knows, with awesome power comes awesome responsibility.
Credit cards are a valuable tool if you’re looking for a quick and easy way to make purchases. And they can also provide plenty of benefits and rewards in the process. But they must be used responsibly in order to maintain healthy finances, including a positive credit score. If they’re not, your finances may pay the price.
A lot of credit cards offer cash back or redeemable points for purchases in certain categories. So — while there are other ways to maximize your rewards — the simplest path is through the categories specific to your card.
However, when using a rewards credit card, always factor in its annual percentage rate (APR) and fees. The higher the APR, the more interest you’ll be charged if you don’t pay off your full balance before it’s due. And some merchants or vendors charge a fee when you use a credit card for payment. Also, some rewards cards may come with an annual fee just as the price of admission.
So, with all that said, if using your card results in paying more in interest or other fees than any rewards earned, it may not be worth it.
With rewards credit cards, it’s all about the “what” … as in what you are purchasing with that card and what you are getting in return from those purchases. If you use your credit card on the right “what,” you can walk away with some pretty sweet benefits.
First, as previously mentioned, rewards cards often dish out cash back or points for specific purchase categories. Credit cards can also come with some pretty useful benefits and protections if used on certain items.
You just have to read the details to know what your card can do for you.
Many credit cards offer cash back rewards or points on things you’re likely already buying on a pretty common basis.
For example, some cards offer high rewards on purchases like gas, groceries, or even bills. So, if you use your card smartly, you can earn a substantial amount of rewards just for buying things you already had to get in the first place.
Another way to maximize rewards on everyday purchases is to have multiple cards, use each card on the categories that earn the highest rewards, and then pay off each card every month.
Looking to get the latest gadget, appliance, or big-ticket item? Using a credit card on such a purchase can not only come with plenty of points or cash back, but also provide benefits such as extended warranties and purchase protection — which provides an extra layer of security on your big purchases in case they’re damaged or stolen.
Just as there are credit card purchases that come with pretty substantial benefits, there are others to avoid.
What makes a bad credit card expense? If using your card results in paying high interest rates and extra fees, perhaps the juice isn’t worth the squeeze.
Cash advances — which are essentially short-term loans from your credit card issuer — are one such transaction you may want to shy away from. Sure, they’re a way to quickly get cash in a time of need. But they also come with fees and high interest rates that can outweigh any other benefits. Plus, they typically come without any sort of grace period, so that means they start accumulating interest as soon as you take the loan.
You should also be aware that certain other transactions may be treated as cash advances by your credit card issuer and, in turn, come with high interest and a cash advance fee. These transactions include gift cards, traveler’s checks, and lottery tickets.
Some bills may come with additional processing fees if paid with a credit card, including:
If you end up paying a processing fee, this may offset any rewards you’ve earned. Plus, if you don’t have a plan to pay the whole balance off, you’ll also run into interest. So not only have you wiped out any rewards you’ve earned, but you’ve also paid more than what the bill actually was in the first place.
As with many things in life, using a credit card is all about balance. And through that balance you should be able to maximize the rewards you earn and minimize the fees and interest you accrue. But how?
These tips may seem simple, but they’re important. Not only will they help you maximize your rewards and minimize interest and fees, but they’ll also help you preserve and improve your credit score.
When it comes down to it, your credit card journey is just that: yours. It’s important to tailor it to yourself as much as possible. Be sure to regularly examine your spending habits so your card is working for you, and don’t be afraid to make adjustments as necessary.
With his eyes set on becoming the next great ad man (at least until his comedy writing career took off), Marc earned his journalism degree and went straight into advertising for various gaming and tourism clients. He later expanded his credentials to include public affairs and communications work for several environmental science organizations before returning to his marketing roots. A lifelong scholar with recent studies in strategic communication, Marc enjoys tying humor into his writing and simplifying complex financial subjects into engaging and easy-to-digest content for a wide variety of audiences.
This material is for informational purposes only and is not intended to replace the advice of a qualified tax advisor, attorney or financial advisor. Readers should consult with their own tax advisor, attorney or financial advisor with regard to their personal situations.
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