How to Make your Credit Card Mimic a High Yield Savings Account?
What if you could turn the tables on the credit card companies and use them for a very nice 5% annual profit? Credit card issuers will often use a "Cash Back Rewards Program" as an incentive to obtain your business (i.e. sign up for a new credit card). The goal is to entice you with the possibility of gaining cash back, when in actuality, the majority of credit card users can not take full advantage of this and make the mistake of carrying a balance greater than the cash back rewards rate. You can turn the tables on the credit card companies and make them pay you full credit without the annoying fees or the high interest rates for simply using their card. After all, they make money each time you swipe your card, not to mention the interest used from carried over balances.
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Things You'll Need
- Cash back rewards card (Visa, Discover, American Express, etc)
- Something you want to buy.
- Cash to pay the credit card balance to zero every month
Instructions
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1
If you currently have a cash back rewards card, skip to step 3.If you do not have a cash back rewards card, you will need to select a card and apply for membership. Proceed to step 2.
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2
To obtain a card, do some research instead of randomly applying to the major issuers like Visa or Mastercard.A site like Bankrate.com or Kiplinger's Personal Finance is perfect for researching credit cards (or any other personal finance matters) due to their unbiased reporting. Once you find the card for you, begin the application process.
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3
Once your card is fully functional, take a look at the specific items you purchase everyday and determine what products or services yield the maximum cash back. This is often in the fine print, but you can also call the customer assistance line for confirmation or if you just don't want to read the entire contract.For example, if Gas Station A returns only 3% versus a comparable Gas Station B returns the full 5% return on the transaction value, simply fill up your tank at Gas Station B whenever possible. With the cost of fuel in the $3 to $4 range, any increase in savings will add extra cash to your monthly budget.
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At the end of each month, pay the entire balance from the previous month. Once this is done, you can check your statements (online or snail mail paper copies) for the cash back rewards you received. To calculate the savings percentage, simply divide the cash back by the total amount you spent that month.
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Monitor your credit card transactions regularly, and if you're on a tight budget, plan out your purchases to coincide with the due date of the credit card to avoid late fees or insufficient available funds to pay the entire monthly balance.
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Tips & Warnings
Pay your balances online. It expedites the entire process and much more convenient.
Set an email reminder with the credit card issuer to remind you of your payment date, minimum payment (always pay to zero), and to check the monthly expenses for errors.
Analyze your spending patterns. If you are spending $25 bucks on food, but $100 on Starbucks gourmet coffee, you could have a spending problem.
Financial discipline is key. Be realistic in your goals, and if you cannot maintain a zero balance, close the account to avoid the temptation.
Do not, unless under dire circumstances, carry a remaining balance. This negates the purpose of having the card, and will cost you 2 to 10 times more in interest payments than were brought in as cash back rewards.
If you cannot maintain a zero balance, do not use the card until this is possible, or use it sparingly so that the balance can be paid with the limited funds you have available.
