Stop Ignoring Free Money!

Howdy ho all you financial wizards. Tell me something... if someone offered you $500 free cash just to live your life, what would you say?

I’m guessing a typical response would be somewhere in the middle of these:

“Dude, quit trying to scam me, I’ll never fall for that crap. Now let me get my money from Nigeria. Apparently I have an inheritance.”

“That would never happen, so I have no reason to assume it’s legit.”

“That sounds intriguing, but you know the saying, 'if it’s too good to be true, it probably is' ”.

“Sounds great, but I’m guessing it’s risky. Tell me more.”

“Tell me how, I want this free cash!”

If the first quote sounds like something you’d say, that’s okay. Just take 2 seconds, delete the Nigerian spam emails, put on some shorts, and read on….

I’m guessing every single one of you has been offered the free money and you promptly tossed it to the trash, or used it as a fire starter.

Here’s your hint; actually start looking at your “junk” mail. On a monthly basis you probably receive a number of thick, classy looking envelopes depicting something similar to the picture below. Look how happy they are! Don’t you want to share in their joy?

Okay fine, it’s all those pesky credit card offers. The ones you immediately rip in half without even opening. So now I’m going to say something else that’ll probably cause many of you to throw up in your mouth.

STOP THROWING AWAY FREE MONEY AND ACTUALLY LOOK AT THE OFFERS!

I know, every financial/frugality website says that credit cards are the devil!! They’re not. Not even close. In fact, I think credit cards are great. They’re essentially paying me to take a free short term loan. Plus, they offer all sorts of perks from car rental insurance, to retail discounts, to free flights, to pure cash. And right this second credit card companies are tripping over themselves trying to get you to open an account with them. They’ll even pay you ridiculous amounts of money to do it.

I’m guessing most of you would run like a rabid badger was chasing you just to collect a $20 bill blowing down the street. Why not make it easier and less embarrassing on yourself.

By now you’ve probably figured out I’m specifically referring to the high rewards credit cards. Before I dive into why everyone should be using them, and charging absolutely everything possible to them, let’s first remove the stigma around credit cards. If you’ve read my previous posts, you understand my position on credit cards. Don’t ever carry a credit card balance! What I didn’t say is to never use them. I use a credit card for absolutely everything possible. Why the hell wouldn’t I? Last year they paid me close to $1,000 for doing nothing. This year I’m aiming to beat that using both my regular rewards and bonus offers on new cards.

With that said, you should be charging (and subsequently paying off) every purchase you make.

Being that there are a numerous credit cards constantly entering the market, there are very few reasons why anyone should be using a card that either has no rewards, or something less than 2-3%. Both Nerdwallet and WalletHub's Best Rewards Credit Cards give a great breakdown on the most popular cards available. Additionally, just Google "high rewards credit cards" and you'll find a plethora of options. Plethora... that's such a fun word that so rarely gets used. Anyways, here is some actionable advice on taking maximum advantage of rewards cards.

First and Foremost - Payoff every card, every month, and never be late.

Let’s be real. As cool as it is to get paid to live your life. It won’t go very far if you turn around and have to take that 4-5% cash back and apply it to 20% interest fees. That’s just bad math. None of these rewards are worth anything if you don’t pay off the card each month. Do yourself a favor and setup autopay, that way you won’t have to think about it when the payments are due each month.

Don’t be afraid to have multiple cards, optimizing the rewards benefits of each.

Many cards offer various amounts of rewards based on what you’re purchasing. For example, some will give rewards as high as 5-6% on groceries, but only 1% on gas or other general merchandise. Meanwhile another card will give you 5% on fuel, or another just gives 3% across the board. Don’t be afraid to have multiple cards. I’ve had as many as 6 cards at any given time, and my credit score has never suffered. Currently it’s above 800. Look for cards that can plug your rewards gaps, and ensure that everything you purchase is getting the maximum reward return. Also make sure you’re comparing cards according to their regular rewards, not just the bonus rewards for signing up.

If you’re planning on traveling, get a good travel rewards card.

As a personal example, my wife and I decided to go on our first cruise last year. Being that I’d rather have teeth pulled then watch my bank account deplete by $2,000, I did some hustling and reduced it by 25%. First, about 6 months in advance I opened a Capital One rewards card, which at the time was offering 40,000 bonus points ($400) if I charged $3,000 within 3 months, an easy task. When we were ready, I booked the cruise through AAA, which immediately saved another 5%, and gave me complimentary ship upgrades. By the time the credit bill came due, I used the accumulated rewards points (over 55,000 – or $550) to discount the bill. Had we known a year in advance that we were going to go on a cruise, I would have opened the card 6 months earlier and had another 6 months’ worth of living expense points. I received over $550 of free money, just to charge my normal life expenses.

There are very similar deals out there right now. If you’re getting ready to travel, get a new rewards card. Even if you currently have one, I’d still open a new one for the bonus points, and consider closing the old one. I’ve done it and as I stated above, it’s had negligible impact on my credit score, which never dropped below 775. Just don’t do it every month, and keep an eye on your financial situation. Don’t leave yourself in a bind by cancelling an existing card and not being able to open a new card because of credit issues.

Consider getting a name brand gas card.

Similar to credit cards, name brand gas cards also offer rewards. I do believe that the quality of gasoline will affect the long term health of an engine, therefore I try to use top tier gas whenever possible. While it’s generally more expensive than your mom and pop shop, using rewards you can usually get it within 5 cents of the cheap stuff. For example, the Chevron Visa card offers 10-20 cents per gallon fuel credit if you charge other purchases to it. At the 10 cent credit, if gas is $2.75, that’s a 3.6% credit. At 20 cents it’s 7.2%. Not a bad discount, and generally better than many rewards cards. Plus, if it keeps your engine running longer, that’s another bonus. If not, no harm no foul. Remember, we should all be thinking long term. Does saving 5 cents per gallon by using low quality gas make sense if it causes your combustion chamber to get dirty, your gas mileage to decrease, and your engine to need a rebuild earlier than had you used high quality gas? Probably not. Although I’m definitely not going to get into the good gas/bad gas debate. Everyone has their own opinions.

Know if there is an expiration policy and the value of the points.

Essentially, read the fine print. Go with cards that have no expiration date, and investigate the redemption options of the cards. Most of the time, the cards have multiple redemption options, and not all are created equal monetarily. Use the redemption option that gives you the best bang for your buck. I normally just go with the cash rebate on my Capital One card, which has worked out great.

Use all of the perks available.
 

Having the credit card doesn’t just mean you blindly charge to it. It’s easier than ever to keep your spending in check using balance alerts. These will alert you if you reach a preset threshold limit. If you’re going to charge everything to rewards credit, it’s essential that you have a way to track it before the surprise bill shows up that you can’t pay. There have been times where my family got a little overzealous and we charged more than our budget allotted, in those cases we had to temporarily go to cash spending until we were on the right track again.

Credit cards are also great at showing you a breakdown of your purchases in various categories (restaurants, gas, general merchandise, etc). It’s very easy to maintain a budget, and more importantly know in which categories you’re overspending.

Most credit cards have a rewards section on their website where they’ve teamed up with various retailers to provide discounts. See who yours contracts with, and use them to your advantage.

Watch the annual fee

Many rewards cards have an annual fee associated with them, which almost all waive the first year. The higher rewards cards generally have higher annual fees, but there is usually a no fee version of most cards as well, but they give less rewards. Do the math and determine if the higher rewards justify the higher annual fee. If not, switch to a card with no annual fee.

In the end, the math is easy. I generally put at least $1,500 per month on my rewards card just with groceries, gas, home utility/insurance bills, and various living expenses. At 3% rewards, that’s $45 per month of free money. Don’t be afraid to do the same. Take advantage of free money!