About four years ago, I responded to an ad for a blogger who would write about earning free travel through credit card rewards. Since I had done so, and enjoyed writing, it seemed like a natural fit. Four years later, I have written well over a thousand posts about credit cards that have appeared in personal finance sites across the Internet and I have undoubtedly become something of a credit card guru. While I continue to spot industry trends, offer helpful advice, and review credit cards, my passion remains earning credit card rewards.
How I earn credit card rewards
My philosophy of credit card rewards begins with a simple premise. I only earn rewards when I pay my balances in full and on time, each and every month. To do otherwise means incurring interest and fees that will exceed the value of my rewards. I strongly discourage anyone from earning rewards until they have established the practice of never carrying a balance.
After that, I look at three key aspects of each rewards credit card on the market. First, what is the sign up bonus? Not being exceedingly wealthy, I tend to earn the majority of my credit card rewards from sign up bonuses rather than spending. Next, I consider what the ongoing spending rewards will be and whether they justify using that card. The rewards must not only exceed any annual fees, but they must also be better than any other card on the market in order to find a place in my wallet. Finally, I look at other perks that a card will offer. Does it help me earn status in an airline or hotel program? Does it offer me a lounge pass, checked bag fee waiver, or some other benefit?
Valuing your rewards
When choosing a credit card based on rewards it offers, it makes sense to put a dollar value on those rewards. I like to measure my returns as a percentage of my purchases. With cash back it is fairly simple, but it is much harder to do when it comes to points and miles.
For example, one of the cards I use often is my Sapphire Preferred from Chase. It offers two Ultimate Rewards points per dollar spent at restaurants and for travel. When it comes time to redeem points, I love the Ultimate Rewards program because it is so flexible. Recently, I transferred 9,000 points to the British Airways Avios program and used it for a round trip on American Airlines that would have cost $350. I can do that because BA is an Ultimate Rewards partner and they offer reward flights under 650 miles through their partner, American Airlines for only 4,500 miles each way. Since I received 3.9 cents in value per BA Avios point ($350/9,000), and I earned two points per dollar spent on my Sapphire Preferred card, I received an astounding 7.8% return on my spending at a time when the best cash back reward cards only approach two percent returns.
By closely examining the value returned from your cards, you too can learn to earn credit card rewards like a pro. Keep reading this space each week, and I will be happy to show you more.