Credit cards can be troublesome—spend excessively on cards with high interest rates, and you could end up in a mountain of debt. But credit card spending doesn't have to be reckless. Once you know how to use cards wisely, they can work for you instead of against you.
In an interview with BB&T, Joel Ang, creator of a travel credit card hack blog targeted toward medical professionals called The Points Doctor(opens in a new tab), shared his opinion.
"Yes, there are a lot of horror stories of individuals who have gone into bankruptcy because of credit card debt," he said. "With a little self-control and good budgeting habits, however, I know that everyone can go on amazing trips for free, or at least for a small percentage of the original cost."
With the right card, you can save money on your purchases and earn rewards like travel, cash back, gift cards and other goodies. It's one of the easiest ways to earn a passive income. Use these nine tips to start credit card hacking today.
1. Build a solid financial foundation first
Before you start to take advantage of credit card hacks, you need to make sure your financial foundation is stable. Without a firm foundation, any building blocks you add will come crumbling down later. A credit card can be a great financial tool, but if you don't have a steady job, little to no debt and savings first, you'll likely end up with high-interest debt. Plus, being financially sound will make you eligible for better credit cards.
"There are a lot of high-end travel cards that those with lower credit scores will be unlikely to be approved for," Ang said.
2. Choose the right card
"The most important question to consider when thinking about applying for a rewards credit card is 'What do I want from this card?'" Ang said. "There are a lot of reward credit cards out there, and without a clear idea of what the consumer wants to achieve, it can be easy to become frustrated when attempting to redeem points."
Every card offers different benefits that will be enticing to different people. Think about what's most important to you. Are you loyal to a particular brand? What type of free rewards do you want? Do you want to avoid fees? Is having an elite status important? Once you answer these questions, you can narrow your options down to the cards that best meet your needs.
3. Determine if annual fees are worth it for a particular card
"If you can maximize the way you use your credit card so that you get more value than the annual fee you pay, then the annual fee is worth paying," Ang said. "For example, I pay $450 a year for a travel credit card that I own. This is certainly a high annual fee cost, and one that can turn consumers away from the thought of applying. However, I easily redeem $1,500 worth of travel a year with the points from the credit card, meaning that I come out $1,050 ahead. Since there is such a high benefit-to-cost ratio, I can justify paying the annual fee."
Simply put, you need to figure out if the perks are worth more than the fee. When doing your calculations, consider benefits other than the points, such as purchase protections and extended warranty coverage. If you find that the perks you would use aren't worth the fee, all hope isn't lost. Sometimes you can call the credit card company and negotiate with them to waive the annual fee.
4. Take advantage of sign-up bonuses for extra perks
Many cards offer a bonus after the first purchase made with the card or after you've spent a certain amount within a specified timeframe. Earning a sign-up bonus is a great way to jumpstart your cash back or points. If you sign up for the card before making a big purchase, it can easily pay off.
But make sure you have the ability to meet the minimum spend requirement to earn the reward. If a card offers $500 cash back but you have to spend $3,000 in the first month to receive it, make sure that's within your normal budget. If you're spending extra cash just to get the bonus, you could end up in debt. But if you'll be spending $3,000 anyway, you might as well get rewarded for it.
5. Refer your friends
Many cards will pay you for each person who uses your referral link and gets approved for a card. These programs sometimes offer a bonus to your friend, too. If you enjoy the benefits of your card, this is a great way to earn more while also helping out your friends.
But be careful to not pressure your friend into getting a card that isn't a good match. A friend who won't use the same perks as you or who has a low credit score likely won't benefit from or be eligible for your favorite card. Also note that sometimes the sign-up bonus a friend receives through you may not be as high as if they signed up on their own. Make sure the referral will actually help your friend, not just you.
6. Pay your credit card bill in full each month
"If you are trying to use credit cards for cash back or free travel, the number one principle is that you have to pay off your monthly bills in full and on time," Ang said. "No questions asked. Paying compounding debt at exorbitant interest rates is a horrible idea. If you follow [the principle of paying bills in full each month], there is no reason to be afraid of borrowing a line of credit."
Following Ang's principle is important to making sure that you're benefiting from your credit card rewards. To ensure that you can always pay the statement balance, don't spend more than you can afford. Once you start paying less than you owe, debt accumulates quickly.
The only exception is for cards that have 0% introductory APRs. In that case, you can pay less than your balance without paying interest. But make sure you have a plan to pay that debt off before the introductory period ends. Otherwise your cash back will be going toward your credit card bill instead of into your pocket.
7. Pay attention to discount categories
Some credit cards offer extra cash back or points in categories that rotate monthly or quarterly. For example, a card may offer 5% cash back on gas purchases one month and on groceries the next month. By choosing cards that have discount categories that are useful to you, paying attention to when these categories are active and using the card that will give you the most benefits, you can maximize your cash back or points.
But be cautious. When you need to make a purchase, use the card that will give you the most benefits, but don't make purchases just to get more cash back or points. If you start spending more than you normally would in a particular category just to get the benefits, you're not really getting a reward.
8. Check often for credit card offers
Getting credit card offers in the mail can be annoying, but instead of tossing them, consider looking over them. Pre-qualified offers are often better than offers that are available to the general public, so this is an easy way to get more rewards, a better sign-up bonus and reduced annual fees.
But pay attention to the benefits. If they don't meet your needs, the offer isn't the best card for you. If you're not getting pre-qualified offers that you want, you can request others from most financial institutions. Make sure to also pay attention to who is sending the offer. If you aren't familiar with the source, it could be a scam.
9. Don't be afraid to open new credit cards (if your credit is excellent)
Some people are afraid to apply for new credit lines because of the potential impact on their credit score. While it's good to be cautious, if you're paying off your credit fully each month, this impact won't matter much in the long-run. There are many people with excellent credit who own multiple credit cards.
With multiple cards that have different benefits, you can maximize your points or cash back by using the best card for a particular situation each time you shop. You'll also get sign-up bonuses for each new card you receive. Just be careful to not sign up for too many cards at one time. Not only will this decrease your credit score, but it will also make it harder for you to meet the minimum spend requirements for the bonuses.
Choose a credit card that works for you
Although credit cards come with risks, they can also come with rewards. With the right strategy and cards, you can start saving on flights, hotels, entertainment and lots of other items that you don't need to pay full price to get.
If you're not using a rewards credit card often, you're likely missing out on a huge opportunity. Not only can you get cash back and points, but using credit cards wisely will also boost your credit score, which will pay off the next time you need to buy a car or make another large purchase.
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