Today's post, 9 Responsible Ways to Use Credit Card Rewards, is a timely one. Credit cards are often overused during the Christmas season. Appropriately used, credit card rewards can be quite valuable.
Today's post is a guest post from a fellow blogger. Marc is a personal finance blogger at VitalDollar.com, where he writes about how to save money and how to make money. Marc has been working from home as a full-time blogger since 2008.
Many of Marc's articles are “how to” articles where he offers multiple tips on the topic at hand.
Here are a couple of great examples.
How to Earn 10% Cash Back for Your Holiday Shopping at Amazon.com (another timely article)
30 Fantastic Stay-At-Home Date Ideas
With that very brief introduction, here's Marc with his tips on getting the most from your credit card rewards
9 Responsible Ways to Use Credit Card Rewards
Credit cards can be a divisive topic in the personal finance community. Some people say you shouldn’t use credit cards, and others are advocates of them.Personally, I use credit cards for almost all of my purchases. I appreciate the convenience of not needing to carry cash, but even more than that, I love the extra rewards I get from using credit cards.
The case that’s often made against credit cards is that it’s easy to spend too much and get into debt if you’re paying with a credit card. In my opinion, that’s a generalization and doesn’t apply to everyone.
You know your own financial habits and limitations better than anyone else does. If you have trouble limiting your expenses with a credit card, don’t use one.
But if you’re not tempted to make unnecessary purchases, there is really no reason not to have a good rewards credit card.
In this article, we’re going to look at how you can use the cash back that you earn from your credit card. There are a number of productive ways that you can use that cash, and we’ll take a look at several of the best options.
If you know how to maximize your credit card rewards and cash back, you can easily rack up a significant amount each year. This year I’ve earned over $1,000 in cash back, and my wife has earned over $500.
Here is my list.
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Lower Your Credit Card Bill
The first option is a great choice, even if it is the most boring one on this list. You can simply apply your cash back balance to your credit card statement and lower your bill. For example, if you have $100 available in cash back and your current bill is $500, you can reduce the balance to $400 by applying your cash back.
If you go this route, you could apply the rewards to your balance each month, or you could wait until you get a larger amount.
While it may not be the most exciting way to use your rewards, it will reduce the amount of money that you need to pay, and that’s a good thing.
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Pay Down Debt
If you have debt, you could use your cash back to pay down some or all of that debt. This is a very responsible way to use those rewards that can have a long-term impact on your finances.
If you work to maximize your rewards (like signing up for a new credit card with a big signup bonus), you can make noticeable progress on your debt payoff.
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Travel / Take a Vacation
This choice is kind of a no-brainer if you’re using a travel rewards card, but you can use your rewards for travel even if you have a cash back card.
Some of the rewards credit cards have their own portal where you can redeem your points and, depending on the company, that portal may have some special travel offers. In many cases, you can get a little bit of extra value by using your rewards to book travel within that portal.
You can also take the cash back that you earn and put it in a savings account that is specifically set aside for a vacation or trip.-
Pay for Christmas Gifts
The past few years my wife and I haven’t spent any money on Christmas gifts. We’ve bought plenty of gifts, but we’ve saved our credit card rewards throughout the year and then used them to pay for all of our Christmas shopping.
I love being able to have a nice Christmas and not pay anything extra for it. It’s a perfect example of why I think credit cards are a great tool if used properly.
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Invest
Many people would love to start investing, but they feel like they just don’t have the money. If that’s the case for you, this is an excellent way to use your credit card rewards.
Accumulating $500 – $1,000 in cash back each year is not difficult if you have the right approach, and that is enough to be a great start for your own investing.
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Invest for Your Kids
This could be in the form of a 529 plan, a savings account, or some other type of investment account.
College expenses are already insanely high, and it keeps going up. It’s never too early to start saving for your kid’s education.
And if you’re not saving specifically for their education, you can set aside money that can be used for other things. Starting to save and invest while they’re young will give the money plenty of time to grow.
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Home Improvements
There are a number of home improvements that can be done for a few hundred dollars or less. You could paint a few rooms, improve an outdoor space, or even upgrade small appliances.
This is a great way to use your cash back because it can make your home more comfortable, and depending on the improvements, it may even increase the value of your home.
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Do Something Fun
So far we’ve looked at a lot of practical ways to use your credit card rewards, but it’s also ok to use your money for fun and entertainment, or for something you normally wouldn’t buy.
My wife likes to use her credit card rewards for things that she wants but can’t justify under normal circumstances. It’s usually things that she’ll get good use out of, but higher in price than other alternatives.
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Give it Away
The last idea I’ll mention is to donate the money to charity. We all have different organizations and causes that are important to us, and giving back is a perfect way to use your credit card rewards.
Final thoughts
How you use your credit card rewards is up to you, but there are plenty of viable options. Now that you've read through this list pick one that looks good to you and make it happen.
If you want to really pile up the rewards and savings quickly, see my article How to Stack Rewards and Cash Back.
If you have a credit card be sure that you’re using it responsibly and paying the balance each month. Rewards and cash back are great, but not if it’s convincing you to spend more money or leading to debt.
Now it's your turn. How do you use your credit card rewards? What's the best thing you've ever done with them? We'd love to hear your success stories.
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Fred,
Thanks for the opportunity to write this article. I appreciate it.
I appreciate you doing it. It’s great information.
I use credit cards all the time (really alternate between 3 as each one has a specific extra reward for certain situations.
As long as you pay the balance fully each month these rewards come with no strings attached. If there is a big purchase I typically ask the vendor if they offer a cash discount and if they do it often trumps the % cashback I get by using a credit card and it if a win win. By doing this I have save over $700 for an orthodontist bill by paying cash and over $600 for replacing my front door.
That’s a great tip. Thanks! My dentist offers a 10% cash discount as well.
I used to be terrified of credit cards (with Depression era grandparents and parents who spend way too much), but since I learned the rewards I could earn I’ve jumped in with both feet. Now I use credit cards for everything, pay my balances in full every month, and have used sign-up bonuses and other rewards for several (almost) free trips. I have yet to use cash back because I’d rather travel with my rewards, but that’s a nice option as well.
Tawnya,
I’m glad to hear that you’re getting the perks of credit cards and paying your balance each month. When you have the discipline to only spend what you can afford, there’s no reason to pass up on the rewards!