Having multiple credit cards and playing the rewards game can save you hundreds of dollars annually if you use the cards wisely.
“The big fork in the road is whether or not you carry a balance,” said Ted Rossman, senior analyst at Bankrate.com and Creditcards.com. “I believe you should use your credit card for all purchases because the rewards are excellent. They can accumulate quickly over time. You obtain improved consumer protections and fraud protections.
“The one big downfall of credit cards is the high interest rates,” he added. “But if you’re paying in full and avoiding those, then yeah, credit cards are great.”
Pursuing rewards can net you considerable sign-up incentives, such as 75,000 miles with the Capital One Venture Rewards credit card or $900 cash back with the Chase Ink Business Unlimited credit card.
Those who use their credit cards responsibly and avoid carrying a balance typically save between $300 and $400 annually. In 2022, Rossman earned $1,701 in credit card rewards. However, getting the most out of credit cards depends on your purchasing behaviours and locating the benefits that will save you the most money.
“If your family spends a lot on groceries, get a card that gives 5 or 6% cash back on groceries,” said Rossman. This is a very effective inflation fighter.
He suggested considering a second card with a reliable fixed rate, such as 2% cash back on all purchases.
The rewards that garner the most interest are frequently travel-related, according to him: benefits such as complimentary or discounted flights, hotels, rental vehicles, airport lounge access, priority passes, and TSA PreCheck, Global Entry, or Clear. In contrast, redeeming rewards for merchandise will likely not provide the best value.
Don’t chase rewards if you carry a credit card balance
Over 80 percent of Americans possess at least one credit card.
Certified financial planner and managing partner at SageMint Wealth in Irvine, California, Anh Tran, recommends having two credit cards, or three if you own a business: one for primary expenses, a second as a fallback, and a third to keep business expenses separate.
However, if you cannot pay off your balance before it is due, she advises against having a credit card at all.
“Paying 20% interest on a balance that you’ve accumulated and then you pay interest on top of that, I mean, that’s a really big hole that you’re continuing to dig and it’s going to be really hard to get out of if you don’t pay your credit card balance,” Tran said.
The average American possesses four credit cards, but the inability to pay off the balance in full each month can be detrimental to one’s credit score and finances.
According to the Federal Reserve Bank of New York, Americans’ total credit card balances reached $986 billion in the fourth quarter of 2022. Those who contribute to this debt should not use credit cards because the interest rates they pay outweigh any rewards.
How much money you save by using credit cards depends on your spending habits and strategy. Obviously, this is assuming you use them responsibly.