My family and I recently returned from a wonderful vacation.
We visited my favorite place in the entire U.S.: Marco Island, Florida.
And it was absolutely free.
We spent five nights at the JW Marriott at no cost to us. And we even flew down there from our home in Baltimore for free.
No, my family didn’t tag along on my latest business trip. And we didn’t win the vacation in a sweepstakes or anything like that.
You see, this trip — and previous trips we’ve taken just like it — was fully “paid for” with credit card rewards.
Now, if you’re a regular Money Talks reader, you know I’m generally not a big fan of debt.
I know from personal experience that debt can create huge financial problems when used carelessly. And that’s particularly true of the high-interest debt typically offered through credit cards.
However, when used responsibly, credit cards can have some significant advantages over other payment methods.
For example, credit cards are easier and safer to carry than cash or a checkbook. They can help you easily track your spending. And they can be a great way to improve your credit history (again, when used correctly).
In addition, credit cards typically provide benefits you simply can’t get anywhere else. These include protection against unauthorized or fraudulent charges, price protection (meaning you can get reimbursed if the price of an item drops after you buy it), and extended warranties on most purchases.
Some cards also include extra perks like rental car insurance, roadside assistance, and insurance for lost or delayed baggage.
And of course, as I alluded to earlier, the best cards also offer fantastic rewards like cash back or points that you can use for things like free travel, dining, and entertainment.
It’s literally like getting free money (or a vacation!) in exchange for your everyday purchases.
But before I share the particular kinds of rewards cards I prefer, I want to talk about how to use them responsibly.
First and foremost, you should think of any credit card as a replacement for cash or other payment methods you already use.
That means you should use it only for purchases that you already make or are planning to make and can budget for in a single month.
In other words, you should NOT use a credit card to borrow money or to finance purchases you otherwise couldn’t afford to make.
The reason should be obvious. Even the best credit card rewards are typically just a small fraction of what you’ll be required to pay in interest on any balance you carry.
For example, suppose you have a card that pays you the equivalent of 3% cash back on every purchase.
That’s an excellent reward rate. But if the card also charges you 13% per year on balances — which is a typical credit card interest rate for most folks — you’d still be losing 10% per year on every dollar you owe.
So please, if you’re going to use a rewards card — or any credit card, for that matter — be sure to monitor your spending and pay off your balance in full each month.
There are many ways to do this, including sophisticated budgeting programs and apps. But it doesn’t have to be complicated. You can use a notebook or a simple spreadsheet to track your purchases, or you might even choose to pay your card off immediately after every significant purchase or group of purchases.
Finally, if you’re already carrying a significant amount of high-interest debt, I would urge you to prioritize paying it down first before focusing on rewards.
Now, when it comes to choosing a rewards card, there are many options. But they generally fall into one of two broad categories.
The first is cash-back rewards cards. These return a specific percentage of every purchase in cash or as a cash equivalent you can use at a particular business. (Some cards now even offer cash back in the form of Bitcoin and other crypto assets.)
The second type of rewards card offers a predetermined number of points for every dollar spent, which you can then exchange for flights, hotel stays, etc.
It can be a little daunting to sort through all the options. There are dozens of different cards to choose from in each category, each with slight differences.
[Please note: These are sites that would pay for the traffic we send to them. But I chose not to engage in that because I just wanted to share with you some ways to learn about how to get the right rewards for you. Neither TradeSmith nor I will get any sort of payment or fee if you choose to open an account with any credit card you find on those sites.]
These sites can be useful for exploring the features and benefits of different cards. However, I’m not a fan of some of the more aggressive tactics they recommend to “game” the system. I believe they’re taking advantage, and ultimately, it’s other consumers who pay the price.
The most important thing is to choose a card with rewards that excite you and that makes sense for your financial situation.
For example, my family and I LOVE to travel. I’d much prefer a free vacation over $500 in cash back. So I focus on using cards that can help us get free flights, hotels, etc.
I also tend to stick to my favorite brands for travel (like Southwest, United, Marriott, Hyatt, and Hertz). And I do my banking with Chase.
So, I personally have a Chase Sapphire card and a Marriott Bonvoy card (which also happens to be issued by Chase).
I don’t have a Southwest or United credit card because my Chase card gets me great point values that transfer well to Southwest or United (and even Hyatt).
These two cards work perfectly for me. But you might be different.
You might love dining out or going to concerts, sporting events, or the theater. You might really like shopping at a particular business. Or you might enjoy having the option to spend the cash back however you choose.
Whatever your interest, there’s probably a card out there for you.
But you also want to make sure the card you choose makes sense for your finances. You especially want to watch out for annual fees, which can range from $0 to several hundred dollars per year.
Lower isn’t necessarily better when it comes to these fees. Cards with higher annual fees can offer additional perks that may pay for themselves in some situations.
For example, some higher-fee cards offer free access to airport lounges with complimentary food, drinks, and amenities. If you travel a lot — particularly on international flights — these cards may actually save you money despite the higher fees.
In any case, the key is to make sure your expected rewards justify the additional fees. Again, sites like those I mentioned earlier can be a big help here.
As always, I welcome your feedback. Do you use credit cards for free travel or other rewards? I’d love to hear from you at [email protected]. I can’t respond to every email, but I promise to read them all.