One of my favorite ways to earn money is by spending on credit cards. Just to be clear, as in the get-rewarded-for-paying-bills-and-other-necessary-expenses fashion, NOT as in let’s-go-on-shopping-sprees-and-get-into-debt way. Read on for a tutorial on how to win majorly with credit cards and my top picks for the best credit card rewards programs for beginners.
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Rules you MUST follow as a credit card user
First things first, engaging in this kind of credit card activity ONLY makes sense if you are responsible with money. In order for this to be worth it, you MUST follow these simple rules:
- Know when and how much money you are spending
- Have enough willpower to not blow your money, i.e. ALWAYS make sure you have enough funds to cover for your spending
- ALWAYS pay your credit card balance in FULL, not just the minimum balance
- ALWAYS pay the FULL balance by the due date
Credit cards can be your best friend
There are tons of benefits to having a credit card, when used responsibly. There’s convenience and also cash and travel rewards you can get for using them. They help you build credit history and improve your credit score, which is important when you want to make larger purchases like buying a house or starting a business.
Ways credit cards can be your worst enemy
But when used irresponsibly, they can be your downfall. You end up paying a much higher price for an item if you are charged interest. This price goes up if you’re tacked with late fees as well. It will affect your credit history and credit score negatively if you don’t keep up with payments. This will hurt you down the road when you want to borrow money from the bank.
If you have the habit of NOT paying your card in full each month, then please focus on paying off what current debt you already have.
However, if you have a good handle on tracking your credit card purchases and not carrying any balance with each passing month, then you should TOTALLY use them to their full advantage.
The best perk of all
The best way to make money from credit cards, and yes, I do mean MAKE money from credit cards, is by focusing on sign-up bonuses.
Our family loves opening credit cards as a side hustle. It has helped us earn thousands effortlessly. I want to share a beginner guide so that you can dip your feet into reaping the benefits of great credit card rewards programs.
How our family earned $1,000
Here was a simple breakdown of how our family earned $1,000 just from signing up for 2 different credit cards:
Chase Freedom:
- $150 sign up bonus, $100 referral bonus, 3 members in our family signed up for the card:
- $150 x 3 + $100 x 2 = $500
Chase Freedom Unlimited:
- $150 sign up bonus, $100 referral bonus, 3 members in our family signed up for the card:
- $150 x 3 + $100 x 2 = $500
Add the two together and that makes $1,000.
Is this safe to open multiple cards?
Yes and no.
This is safe to do as long as you use credit cards responsibly, which means paying off your full balances on all your cards by their due date. If, however, you already have credit card debt, then no, this is not a safe option. Also, see the next point below.
How does it affect your credit score?
In the short term, your credit score may go down a few points, but if you generally have good credit, then this isn’t really a problem. In fact, in can help you in the long run because it looks good when you pay off your balance every single month. It helps you to build a good credit history.
One situation a responsible credit card owner may not want to do this, though, is if you plan to take out a loan in the near future (within a year or two). When you ask a bank to loan you money, they will check to see your credit history. If they see you have opened a bunch of credit cards recently, then that might affect their decision to approve the loan or not.
If you want to check your credit score, you can do that through a site like Credit Sesame. It’s totally free to sign up.
What to look for in a good welcome bonus
So if you are responsible with credit cards and are NOT planning to take out a loan soon, then you should consider signing up to enjoy credit card welcome bonuses.
But not all bonuses are created equal.
Here are some criteria I look at to see which cards are worth signing up for:
- What is the amount of the welcome bonus?
I want to focus my efforts on the cards that will get me the best return. - What are the terms to qualify for the welcome bonus?
There is usually a minimum spend within a certain time frame. The spend amount usually varies, as does the time frame, but I find the time frame is typically within 90 days of opening the card. - Does the card have any annual fees?
It’s best if there is no annual fee at all on the card. If there is a fee attached to the card, I calculate if I will still make out significantly ahead. If so, then I will consider getting the card.
Now that I’ve laid out what I look for in credit card welcome bonuses, let me share my top picks for those who want to get started on how to make money from your credit cards.
Spend strategy
In order to get the greatest benefit from these welcome bonuses, you'll want to charge expenses that you already incur on your credit card, NOT spend more than you need. Some ideas for what to charge on your credit card:
- Bills, such as water, electric, car insurance
- Budget grocery shopping
- Gifts for other people (make sure you're getting cash back from Rakuten and discounts from Raise.com to get the best deals!
- Donate to charity
- Pay taxes (note that a convenience fee is charged for using a credit card, so you will need to gauge if it's worth it to charge on a card)
- Pre-pay for future expenses: you can pay extra towards your bills and utilities or buy gift cards to stores you regularly visit to use later on after the 3 month spending period to qualify for your bonus is up
Top recommendations for best credit card rewards programs for beginners
Here are my top three picks that I want to share.
Chase Freedom Unlimited
- Welcome offer: $150 when you spend at least $500 within the first three months of opening an account
- Annual fee: $0 for as long as the account is open
- Rewards: 1.5% cash back on all purchases
- Referral bonus: $100 when the person who signs up through your link successfully completes the welcome offer, receive up to $500 in referral bonuses per calendar year
Chase Freedom
- Welcome offer: $150 when you spend at least $500 within the first three months of opening an account
- Annual fee: $0 for as long as the account is open
- Rewards: 5% cash back on purchases in activated bonus categories that change by the quarter and 1% cash back on all other purchases
- Referral bonus: $100 when the person who signs up through your link successfully completes the welcome offer, receive up to $500 in referral bonuses per calendar year
Discover IT
- Welcome offer: $50 when you make your first purchase within the first three months of opening an account
- Annual fee: $0 for as long as the account is open
- Rewards: 5% cash back on purchases in activated bonus categories that change by the quarter and 1% cash back on all other purchases
- Referral bonus: $50 when the person who signs up through your link successfully completes the welcome offer, receive up to $500 in referral bonuses per calendar year
A note about referral programs
With both Chase credit cards, you are not notified when someone signs up for a card under your link. If someone does sign up and meet the requirements, you will see the bonus when you log into the rewards program dashboard. The junk thing is that you will have to manually check on this. Also, it is unclear if the $500 maximum is for each card or if it’s combined on all Chase products.
For example, if you signed up for the Chase Freedom and referred 5 people and signed up for the Chase Freedom Unlimited and referred 5 people, I couldn’t tell from the terms and conditions if you will get $1,000, or if the max is $500 since they are both Chase products.
Also, with the Discover IT card, the current referral program is set to expire on December 31, 2017. I will update the post when the new year comes in case the terms change.
How these cards compare to each other
If you're feeling overwhelmed by the options and just want a straight recommendation on which card to get started with, here is what I suggest:
Chase Freedom Unlimited: If you can easily spend $500 within 3 months (not shopping sprees, but real costs like groceries, bills, utilities), but don't want to keep track of the different bonus categories so you get 1.5% across the board on any purchase.
Chase Freedom: If you can easily spend $500 within 3 months (not shopping sprees, but real costs like groceries, bills, utilities) and are able to keep up with the special 5% bonus categories.
Discover IT: If you don't want to worry about spending $500 in 3 months and just want to get a bonus with a single purchase.
Recap
This is a long post, so let’s go over the important points of this post:
- Be honest with yourself about your credit card habits. If you are in credit card debt, then pay off that first before you try out any of these.
- If you are responsible with credit cards, figure out if you plan to apply for loans in the near future. If so, you may want to hold off on this until you’ve been approved.
- If you have the green light to try this out, these are the three I recommend:
Credit cards have so much to offer if you are responsible with them. Welcome bonuses are one of my favorite side hustles to add extra income for our family. If you are new to credit card bonuses, then this guide on the best credit card rewards programs for beginners is the perfect way to get you started.
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