Most financial advice about credit cards warn you about the dangers: the risk of getting in debt and the potential for paying hundreds of dollars in interest and fees. While there is truth to this, the whole truth is that it depends on how to use your credit card.
You can make big mistakes, rack up a lot of debt, and ruin your credit. You can also use your credit card responsibly, learn the rules, build your credit, maximize the returns on your credit card spending and even earn money. And you can do it without getting into debt if you follow two basic rules: charge what you can afford and pay your balance in full every month.
Here are some ways to use your credit card to your advantage, and even make money on it.
- Accrue Miles for Free Travel
Use a travel rewards credit card to earn miles or points that you can redeem for a free flight or a free hotel stay. You can use the free flight for an annual vacation, holiday travel, or weekend getaway. Travel hackers take advantage of credit card sign-up bonuses to get a generous sum of miles for minimal effort. Do your research on the best travel rewards cards and explore the redemption options, including various locations and time frames. Just be sure you can meet the spending requirement, and that you are not overspending just to get the miles.
- Invest Your Cash-Back Rewards
Instead of just spending money on your credit card, you can make some money back through cash-back rewards. Some credit cards have no annual fee and offer a cash bonus after spending a minimum amount within first three months. Using cash-back rewards, you can put your bonus money in a high-yield savings account or a retirement vehicle to help you earn more for later.
- Go Shopping with Your Points
Certain credit cards allow you to accrue points and redeem them in-house using their shopping portal. You can also maximize your rewards if you redeem your rewards for a gift card with the credit card issuer’s rewards partners. For example, you may be able to redeem $20 in cash rewards for a $25 gift card. If you go to those places anyway, or have upcoming shopping, save your own hard-earned cash and get a gift card. In addition to redeeming points for gift cards, some credit cards allow you to connect your points to ecommerce marketplaces and use your balance for shopping.
- Try Credit Card Arbitrage
Credit card arbitrage is the process of taking a zero- or low-interest loan on a credit card and depositing the money into a high-yield savings account or investing vehicle.
To do this, you sign up for a zero percent or low-interest credit card that offers cash advances or balance transfers. Many of these cards have introductory rates for a limited time, so be sure to read the fine print and understand when the promotional period is over. Once approved, you write a check to yourself and deposit the money into something like a money market account.
It is crucial that you make all minimum payments during this time on your credit card. Because there is no to low interest, you can make higher returns using the money in a high-yield account. Pay off the rest of the loan before the introductory period ends, and pocket the interest earnings. In short, you can profit off the interest and make more money than what you borrowed. For example, if you took a loan of $10,000 and got a return of 3 percent, you could make $300 in interest, minus any potential fees.
This method is by far one of the riskier strategies, as there could be transfer fees — and even one overdue payment could cost you in late fees and damaged credit. You must be organized to play the game.
Using the above methods, it’s possible to make money with your credit card. However, to be eligible for certain rewards credit cards, you typically need to have good credit. In addition, watch out for fees and read the fine print to make sure you are making a profit.
These money-earning tactics are best reserved for responsible credit users who make on-time payments and have good credit. If that’s you, you could have your credit card earn you money and work for you.