Credit card rewards: my take

As many of you know, I have big dental expenses coming up next year. Somewhere between $2800 and $5000 of expenses. I’m looking at ways to minimize the bite, and I said offhand to my wife that I wished there was a credit card that gave extra rewards points for medical expenses.

Then I realized I hadn’t actually ever looked for that type of card! But I did some research today and, alas, I don’t think there is a card that gives you extra points for that category of spending. I don’t know why; just one of those weird quirks of the credit industry. Because there are ways to get extra rewards for almost every other type of spending, if you play your cards right (you saw that coming, right?). And, there’s still a chance I can significantly offset my medical bills using credit cards.

There are two main strategies for taking advantage of credit card rewards: finding the card(s) whose everyday rewards structure works best for your spending, and the credit card churn.

CAVEAT: Before I go into this, I want to say I don’t recommend ANYone try to play the credit card rewards game if you carry a balance. Why? Because if you already carry balances, it could be difficult to make sure you pay off any new purchases, and the interest you pay on the increased balance could negate the rewards you earn. I started learning about these strategies a year or so before I paid off our credit card debt, but I held off doing anything about it until all my existing balances were paid off. Even then, I hesitated about starting to use cards again, but I dipped my toe in and discovered I had no problem keeping them paid off, so now I use credit cards regularly.

So first, go and pay off all your credit cards. Easy, right? I know, it’s not, but if you do carry credit card debt, I recommend you make eliminating it your number one goal (besides spending less than you earn).

Anyway, on to the credit card reward strategies:

1. Everyday rewards. Many credit cards have rewards programs attached. Typically they reward you points worth 1% of your purchases and let you withdraw them once you’ve hit $20 or $25 worth of points. So if you have a card that offers that, once you spend $2000 you’ll have enough rewards points to redeem for a $20 check or statement credit (or gift card, or airline travel discount; but cash back is my favorite so I’ll focus on that). It doesn’t sound that great, huh? But many cards also offer extra points in some categories. As a random example, BankAmericard Cash Rewards™ Credit Card offers 3% rewards on gas and 2% on groceries. So for spending $1000 on gas, you’d get $30, and $1000 in groceries would get you $20 back. Some cards give even better rewards. The Target Visa gives an automatic 5% back at the register when you use it for Target purchases, so you don’t even have to wait to accumulate rewards; you just get the discount right there. And some cards offer rotating bonus categories that change every quarter.

My favorite card, besides the Target RedCard Visa, is the Blue Cash Preferred® Card from American Express. It offers 6% rewards for groceries and 3% for department store purchases. There’s a $75 annual fee, but even with that we clear about $350 a year. If I ever find a card that has a fixed 5% reward for groceries, that would top the 6% minus $75, but for now, it’s the best grocery card for me.

An intriguing card I just found out about is the USBank Cash+ Visa card. You can choose two categories to get 5% rewards for. Unfortunately, groceries is only eligible for 2%, but if you tend to spend a fair amount at department stores, restaurants or hotels (to name just a few available categories), you could earn 5% rewards on them. Right now we hardly spend any money at stores outside of groceries, so I doubt we’ll get much use out of this one, but I think it could work for someone else. The Chase Freedom Visa offers three 5% categories, but it chooses them for you. Right now the categories are Kohl’s, gas stations and amusement parks, and past categories haven’t been very relevant for me either. I’ve been using a Chase Freedom for years, but I mostly only earn the 1% because I spend in non-bonus categories. At this rate, I’m starting to think I’d be better off with the Quicksilver Cash Rewards Credit Card from Capital One, which gives you a straight 1.5% on all purchases. At least I’d be getting $30 per $2000 instead of $20.

One place we do spend a fair amount of money is Amazon.com, and we have an Amazon Rewards Visa Card linked directly to our account that earns us 3% on Amazon purchases. And it’s easy to redeem the rewards as a discount during checkout.

If you’re organized enough to track spending on multiple cards, I’d recommend using several, maximizing the amount you spend on your most common categories. That’s where we’re heading, although we haven’t completely settled on the best cards for our everyday spending (besides groceries, Target and Amazon). Many sites have regular roundups of the best cards, including one of my favorites, Kiplinger’s.

One reason I haven’t completely focused on the best permanent cards to carry is that I’ve spent the past couple years engaged in the other type of credit card rewards tactic:

2. Sign-up bonuses, aka the credit card churn. Right around when we finished paying off our credit card debt, several card companies — mainly Chase and Citi — were offering pretty outlandish bonus offers if you opened a new card and spend X in X months. In 2011 and 2012, I made over $4000 per year without spending a cent more than I’d intended to spend anyway, just by opening cards, spending up to the point where I could get the bonus, paying the card off, redeeming the bonus, and closing the card. The cards aren’t offering those bonuses right now — one of the bonuses I got was $1000 for spending $3000! — so my rewards this year have been much smaller, and I haven’t opened and closed as many cards.

That said, if you know you’re going to be spending a ton of money, it might be worth taking advantage of these types of bonus offers to offset the cost. For instance, we were going to England and knew we’d most likely use Delta, so we opened three Amex Delta cards — one in each of our names — and spent up to the point where we each got $300 worth of Delta miles. So when we booked our trip, we got a $900 discount on our airfare by using the bonus miles. And for my upcoming dental costs, I might take advantage of one of the few remaining big-bonus offers (unless there are new big offers next year): the Chase Sapphire Preferred® Card, which gives you 40,000 points for spending $3000 in three months. That’s $500 of travel rewards or just $400 straight cash. So it would be like spending $2600 on dental expenses vs. $3000.

So keep an eye out: The big rewards may come around again. And even if they don’t, there are tons of “spend $500, get $100 back” offers out there that you could use for a small but easy cash infusion. I check in regularly at several great websites: My Money BlogCreditCards.com, nerdwallet,

You may be wondering, how’s my credit score doing with all this opening and closing of accounts? I have to say: Great! Occasionally if I open or close several in quick succession, I’ll see a small temporary dip in my score. But it’s stayed in the high 700s, low 800s this whole time, so I honestly don’t think it has much effect as long as you don’t miss any payments and don’t carry a balance.

CalculatingCreditCardRewards

Image courtesy of moggara12 / FreeDigitalPhotos.net

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