Earn Exponentially: Making the Most of Your Credit Card Rewards

This calendar year, I earned enough reward points on my credit card to fly myself across the world and back for FREE.  This is not because of lavish spending, but because 60% of the points I earned were bonus points gained from intentionally focusing my choices and buying habits on "exponential" point earning.

You can too!  It only takes a few intentional habits, knowledge of the point-earning process, and the right choice of credit card to make it happen.

Intentional Earning Habits
When you spend money, you have a choice of methods of transaction, such as cash, check, credit, etc.  Most payment methods don't reward you for using them. In fact, many often charge a fee for their use (ATM fees, wire transfer fees, etc.).  Credit cards, however, reward you!  If you change your habits to make your credit card your payment method of choice, you could start to enjoy the fruits of those rewards.  NOTE: This is only if credit are used appropriately (see my previous article: "Cash or Credit: Being savvy about the real cost of credit"), or the interest/late fees will negate all benefits of earning rewards.

The Earning Process
Most credit cards provide baseline rewards of one point earned for each dollar spent, and then allow points to be redeemed for goods, gift cards, travel, or unique experiences. To best describe the actual dollar value associated with points, I will assume that points are redeemed for rewards worth at least 1% (1,000 points = $10 rewards).  As mentioned on my Rewards and Points page, this is usually a best-case scenario achieved when points are redeemed for travel or gift cards.

Basic Point Earning Scenario:  
Let's say I used my American Express card whenever possible, and that I spent $10,000 last year with no earning tricks - just good old swipe-'n-go spending.  This would earn me 10,000 points.  If I redeemed those points for 1% valued goods, I would earn $100 worth of rewards for the year.  Not bad, but at that rate it would take three and a half years to earn enough for an average plane ticket of $350.

How I Earned Exponentially:
Instead of the above scenario, I picked a credit card that awarded my biggest areas of expense: 2X points for groceries and gas, and 3X points for air travel (none of my family lives within driving distance).  I also used my card's bonus points mall when making online purchases, earning 3X, 5X, and sometimes 10X the points per dollar spent.

With my card choice and buying habits, I actually averaged 2.6 reward points for every dollar I spent.  Assuming I spent the same $10,000, I earned $260 in rewards rather than $100.  That would mean in the same three and a half year time span of the basic earning example above, I would have earned $900 in rewards rather than $350!  Now we're talking!  Just think of the rewards over five, 10, or even 20 years!  PLUS, if you use points as your way to save for vacations, the money you would usually put away in a savings account is now free to be used for other things - or better yet, invested to gain interest!  Classy Not Pricey?  Definitely.
Touring a Chianti vineyard, Italy
Choosing Your Credit Card
This is a very complex decision in order to make sure you are truly choosing the card that is best for your financial goals and needs (among many other factors).  For this article, here are some key points to consider when choosing a credit card to earn exponentially:
  1. Pick a card that rewards your usual activities.  If you are a foodie and dine at restaurants regularly, choose a card that offers 5X points for restaurant dining.  The business traveler or jetsetter would benefit from the 3X travel rewards card.  And so on. Check out Google Advisor or other sites to compare cards.
  2. Be cautious when choosing a card with an annual fee that exceeds 1% of your spending.   If your average yearly spend on a credit card is $7,500 or less, signing up for a rewards card with a fee of $75 may not be worth your money.  Committing to a fee means committing to exponential earning habits in order to see the benefits. 
  3. Link your rewards accounts together.  My personal and business credit cards are linked to the same rewards account, so the points earned across both cards accrue in the same place. A great starting point is looking at your current cards and banks to see what they offer in terms of linked rewards accounts.
  4. If opening a new card, there are often bonus point incentives for choosing a card.  These can be HUGE - like 25,000 or even 50,000 points after your first purchase/payment on the card.  Don't let these incentives persuade you into a card that ultimately doesn't meet the criteria above, but if the timing is right and the promotions are ripe, earn exponentially with their incentives!
And that, my friends, is the skinny on how to be rewarded for your payment method of choice while spending as you normally would.  You could find yourself on the trip of a lifetime (Classy Not Pricey article: From Romania to Israel to Paris - Traveling for free with miles, points and other tricks), or save up for a fantastic gift card to your favorite retailer.  Have you mastered this process already?  What are your earning tricks?
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