Free Credit Cards That Pay You Back

What’s in YOUR wallet?” You’ve heard the advertisement (unless you haven’t seen any TV in the last 2 years).  But it’s a fair question – one that should be answered at least annually.  Right now, I have a Costco Amex, a Chase Sapphire Visa, and a Schwab Invest First Visa (which pays 2% back on everything – for now).  All include rewards programs.  Though I generally use the Costco Amex which provides 1-3% cash back, I wondered if there might be better alternatives (I prefer cash back as it provides the ultimate flexibility)…

Although the rules have changed for credit cards, there are still a number of ways to “make” money using credit cards – by getting rewards or cash back.  Before getting excited, be aware that taking advantage of credit card rewards requires discipline, not only in what you spend but also in how and when you pay.  It’s generally better for those with regular income, pay off their balances every month and have good credit (FICO credit score of 690 or higher) because the interest (and sometimes penalties) are generally higher for credit cards that offer rewards.  If properly managed, credit card reward programs can help you save – or make – from hundreds to thousands of dollars each year.  Also, keep in mind that not all credit card rewards programs are free.  If you don’t properly manage your credit card, you might end up using one that charges almost 80% interest, has no grace period, and / or doubles your interest rate if you are late on a payment (here’s a list of the worst credit cards of 2010).

Caveat emptor advice non-withstanding, there are many credit cards offering great rewards and some good online resources to help find them.  If you have good spending and payment discipline, you can maximize your rewards using multiple cards targeted to your specific needs.  Rewards include cash back in your pocket (e.g. Costco TrueEarnings American Express) , cash back on your statement (Blue Cash from American Express, ), travel points (e.g. Hilton Honors from American Express), gas rebates (e.g. Shell Platinum Mastercard), specific store rebates (e.g. Visa) and general rewards / points (e.g. USAA Rewards World MasterCard).  Which cards make the most sense for you?

There are several types of reward programs:

  • Cash Back –  rebates on certain purchases, usually gas (0.5 – 5%), groceries (0.5 – 5%), travel (0.5 – 3%), dining (0.5 – 3%) and 0.5 – 1.25% for everything else.
  • Travel – points toward travel with specific airlines, hotel chains or both, typically 2-5% for the sponsor and 0.5 – 1% for everything else
  • Gas – rebates on future gas purchases, typically 2-5% for gas at specific chains and 0.5 – 1% on everything else (this has declined significantly since the rule changes)
  • Store – offered by department and home improvement stores, typically offers 1-5% on purchases at the chain and 0.5 – 1% on everything else)
  • Rewards – points which often may be flexibly applied toward travel on multiple / any airlines / hotel chain, cash back or catalog merchandise (0.5 – 5% in various categories)

How to pick?

There are several online resources (which receive nice commissions when you sign up for credit cards by clicking the Apply Now buttons on their sites) to help you choose the credit cards (including rewards credit cards) most suited for you:

  • – Money magazine’s 2010 Best Credit Card Site, with real-world rewards calculators to help find the best credit cards for you
  • – reviews, ratings and a simple filter from consumer advocate Curtis Arnold and site visitors
  • – blog with “Best” lists, reviews and articles on all things financial
  • – rate comparisons on all things financial, with credit card filters by type, credit rating and issuer

What did I find?

After looking at the details, I decided to:

  • close the Chase Sapphire (it was formerly a great store rebate program, that changed into a good points / rewards program)
  • open an Amex Blue Cash account to use for gas, groceries, home improvement and other 5% categories
  • open a Chase Freedom Visa (need a backup in case Amex isn’t accepted)
  • keep the Costco Amex for membership, but use the Blue Cash instead

Of course, your mileage may vary.

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