How to Make Money Using Credit Cards

Many finance gurus warn against the use of credit cards as if their only purpose is to generate debt; however, the reality is credit cards can be a debt nightmare OR a beautiful tool for making some extra income. When used correctly, you can actually profit from using them.

(This is a good time for a disclaimer. If you do not trust yourself with a credit card, you cannot save a dime, you're already in a lot of debt, or you have poor self-control with money...this post is NOT for you. Stop reading now.)

I have had a credit card since I was 18, knowing it was 'important to build good credit'. It was only after I started using it properly I realized it was way more beneficial than just building good credit. Ten years later, I have a really nice system going for managing my credit card(s) and I've made a decent chunk of cash from it.

Understand the Process Before you Apply

It's really quite simple once you get the hang of it.

Step 1: Treat your credit card like it's your debit card

This only works if you spend what you can actually pay for. When using your debit card, you don't spend more than what is in your checking account to cover it right? Otherwise, you overdraft. Treat your credit card exactly the same way. This means you have to keep up with the balance on your credit card vs. the balance of your checking account.

Step 2: Pay off the entire balance every month on time

When you receive your monthly statement for your credit card, pay it off completely immediately (which you should be able to do easily since you didn't spend more than you have in your checking account). This ensures you never pay a dime of interest. If you let any amount roll over into the next month and pay interest on it, you're defeating the entire purpose and losing money. If you make payments late, you add on late fees and your credit score goes down which also defeats the entire purpose. If you pay if off on time and fully you'll build your credit score and basically get paid to do so.

Step 3: Don't spend more thinking you're earning more

If the goal is to make money from your card, you'll only want to spend what you would normally be spending on your debit card instead of trying to spend more because of 'all the rewards you're earning'. For instance, if your card offers 2% cashback and you spend $500 per month you're earning $10 back. If you spend $50 extra dollars because 'you'll earn more rewards back', you will have spent $550 total and only earned $11 back...effectively wasting that $50 extra which completely defeats the purpose.

Step 4: Put literally everything you can on your credit card

Once you've gotten the hang of steps 1-3, put literally everything you can on the credit card. I have all of my monthly expenses going on my credit card on auto-pay (car insurance, Netflix, internet, Amazon Prime Membership, etc). You can pay just about everything excluding your mortgage or rent with a credit card. The only caveat is if there is a fee associated with using a credit card and the fee is higher than what you earn back...use a debit card. For instance, if your power company charges a 3% fee for using your credit card and you only earn 2% in cashback, you'd be losing 1%. I also put any other purchases I make during the month on my credit card (food, groceries, gas, etc.). If I'm going to be spending this amount anyway, I'd rather be making 2% cash back on it.

Apply for the right card

You'll most likely want to choose the highest cash back credit card with a $0 annual fee. There are tons of cards to choose from with a variety of rewards programs. If you travel a lot, you may want to choose a card with mileage rewards. For me, I'd rather have simple cash back and not have to think about if it is worth the annual fees or not.

Your current credit score, length of time you've had credit, and your income will affect which cards you'll be able to get. If you're just starting out, you may have to get a starter credit card. I would recommend a Discover It card to a beginner (I started with Discover when I was 18). They have decent options with cash back from 1-5% on certain purchases and after a year or so you can possibly upgrade to a better card. If you have absolutely no credit, you may have to get a secured card from your bank or a card provider where you put a small deposit down first (not ideal for the purposes we are talking about here, but you have to start somewhere).

Personally, I use the Citi Double Cash Card and have for several years. It offers 2% cash back on every single purchase. For me, this is more consistent cash back than the cards where you pick categories for cash back during certain months. Depending on my spending, I earn $20-$50 per month in cash back and immediately deposit it into a high-yield savings account where I earn more on it until I choose to spend or invest it. For the past few years, I've been able to purchase all of my Christmas gifts solely from Cash Back from my credit card. I've used a few other credit cards over the years, but Citi has been my go-to for a while now.

Other Tips and Hacks:

Special card offers from retailers

There are certain times where it is beneficial to take advantage of special card offers from retailers. I have about 30 lines of credit I've acquired over the years from various retailers. For instance, I'm making a large purchase and the cashier offers a 25% off special for applying for their store credit card. I apply for the card! Then when the statement and card arrives in the mail, I pay it off and cut up the card. If you ever need to use it again, they can look you up in the store. Another example is Lowe's; they offer 5% off on their credit card which is nice for large home purchases. These are just simple ways to save on purchases you'd be making anyway. The minimalist in me does not like having or using a lot of cards at once, so I typically only do this rarely if the deal is really good.

Card Churning

More advanced card users can take advantage of card churning. This is where you take advantage of sign-on bonuses over and over. For instance, you get a card that offers a $500 cash back bonus after the first $3,000 spent. After you get that reward, you get another card that offers $200 cash back bonus after you spend $1000 in the first 90 days. I don't currently take advantage of this method because I like the simplicity of my method and having my purchasing history all in one place, but this is a great idea if you want to keep up with it.

Happy Earning!

I hope you have enjoyed this post on how to make money using credit cards! Let me know if you try it and which card you choose.

A collage of photos for Heather Corinne's blog: Warm cup of coffee, yarn and gold scissors.