Credit Card and Computer

Total: $1,806

That’s what I’ve made with credit cards this year, mostly from bonuses (a small percentage came from cashback from normal use). I received about half of that in the form of cash equivalents like statement credits, checks in the mail, or gift cards for Walmart, where we buy our groceries. The other half has been in the form of conservatively-valued bonuses like hotel rooms and airline tickets (I’ll have more to say about putting a value on these things below).

Since it is July as I write this, I expect to collect well over $2,000 in credit card bonuses for the year. Want to do the same? Don’t wait for the offers to come in the mail. Get online and start applying for cards with the best signup bonuses. To do that without getting into financial trouble: try the following routine…

  1. Get a credit card that offers a decent bonus.
  2. Purchase only things you normally use (exceptions will be discussed).
  3. Always pay the balance in full monthly, to avoid any interest charges.
  4. Carefully track your activity to meet all requirements for the bonus.
  5. Claim the bonus the right way.
  6. Get a new card that offers a bonus.
  7. Repeat this process over and over.

Do you need a decent credit score to do this? Yes, to make a lot of money, but there are some bonus cards available for those with lower credit scores.

Understanding the Various Types of Bonuses

Some cards offer cash back as a bonus, which could be in the form of a check in the mail or a statement credit. Points and miles that can be redeemed for various things are another common bonus. For example, I just redeemed points from my Citibank card for two plane tickets and a car rental (I had a lot of points).

Here are some common redemption options:

  • General statement credits
  • A check
  • Various gift cards
  • Travel credits
  • Airline flights
  • Hotel rooms

Many cards have a points-to-dollar ratio of 100-to-1, so, for example, 10,000 points will get you a $100 gift card or a $100 statement credit. Sometimes there are better payouts for specific redemption options. That’s why I used my points for those plane tickets — I got 25% more value than if I chose gift cards.

With hotel cards you usually redeem points for rooms according to the category of the hotel at which you stay. For example, my 50,000 Marriott points will get me six nights at category one hotels (7,500 points per night) or just two nights at category 5 hotels (25,000 points per night).

Choosing Card Offers

Since specific promotions come and go I won’t be talking about them here. I set up a page that has links to all the best resources for finding current deals:

http://www.EveryWayToMakeMoney.com/credit-card-bonus-resources-list/

That web page will point you to…

  • Places to find current bonus offers
  • A place to search offers based on your credit score
  • Places to find discount gift cards for meeting spending requirements
  • Various relevant resources

Consider the bonus/spending requirement ratio if you want to maximize how much you collect each year. For example, a $100 bonus for a $500 “spend” (20 percent) is better than $200 for a $2,000 spend (10 percent). The idea is to get the most bonus money for your spending, and you can always apply for lower-ratio cards later if you burn through the best offers.

Meeting Requirements

Sometimes a bonus is offered just for getting the card and making a single purchase, in which case you can buy a $5 item and collect your bonus. But more often you have to spend a certain amount in a specified time frame. For example, the offer might say you need to spend $500 on the card within 60 days to get a $100 bonus.

You could probably meet that requirement with groceries, but for larger “spends” you may need to make a plan. Here are some strategies to consider…

Apply at the Right Time – Wait until you have a large bill to pay to apply for a card with a large spending requirement. For example, if you have to pay a $900 home insurance bill soon, that’s the time to apply for that credit card with the bonus requirement of a $2,000 spend. You can be almost halfway there the first day you get the card.

Buy in Advance – I don’t recommend ever buying things you don’t need just to meet a spend, but if nearing a spending requirement deadline you can stock up on items you buy regularly or pay a few bills early.

Purchase Gift Cards – You can meet a spending requirement by buying gift cards for places you regularly shop. This strategy becomes even more powerful if you buy at a discount. For example, I recently bought an Applebee’s gift card with a balance of $32 for about $27. I was $27 closer to my spend requirement, I saved $5 (my wife and I go there at least once monthly anyhow), and I made 1.5% cash back on the card I used.

Here’s that resource page again, which has links to places to buy gift cards:

http://www.EveryWaytoMakeMoney.com/credit-card-bonus-resource-page

Tracking Your Activity

If you do this more than once you may get confused, so track everything involve. It isn’t difficult once you set it up. I tack expenditures on a slip of paper in my wallet or check the account online. I like to run a little past the required spend in case I slightly miscalculated or I return an item bought with the card.

You also need to record this information for each card:

  • Approval date – The “requirement clock” starts here, not when you receive the card
  • Spending requirement and deadline
  • Other requirements (read that fine print)
  • Login information for your account online

I have an index card on a bulletin board for each offer, and I put deadlines on a calendar. If you get good at this your next bonus card will arrive just as you meet the requirements for the current one.

Counting up Your Bonuses

Good news! The IRS says credit card bonuses are generally not taxable income. As long as there are spending requirement they’re seen as discounts on purchases. Tax-free income!

You still may want to count up what you make, to know if it’s worth the trouble. I figure I make roughly $30 to $60 per hour chasing credit card bonuses, including all time spent dealing with redemptions, and such.

But how much is a bonus worth? For me, these are the same as cash:

  • Checks
  • General statement credits (can be spent on anything)
  • Gift cards for places I normally shop

Other bonuses I value according to what I would have spent if I didn’t have the bonus. My plane tickets were easy, because I was about to pay when I realized I could use my points, so the $448 cost is what the points were worth. On the other hand, we stay in $200 hotel rooms using points, but we would normally pay $100 for a different place, so that’s what I value those at.

Non-cash-equivalent bonuses can be tricky to put a number on, but you can decide for yourself what each one is worth.

Paying Credit Card Fees

Some credit card bonus offers are for cards with no annual fee. Others waive the fee the first year. In that case, collect your bonus and cancel the card within a year.

On the other hand, you may be willing to pay a fee depending on the card. The “annual reward night” on my Hyatt card is worth the $75 annual fee to us, and I’m even going to pay a $69 fee upfront (no first year waiver) to get two free plane tickets with my new Frontier Airlines card.

Maximizing Your Bonuses

Here are a few tricks for collecting the most you can from credit card bonuses:

Time Your Applications – Get the next card just as you’re about to meet the spending requirement on the current one. Your goal is to have most (or all) of your spending count toward those bonus requirements.

Get a Check – If you have the option (ask if you’re not sure) get a check for your statement credit instead of spending it. You can deposit the check in the bank that way and make your purchases with the next bonus card.

Choose the Right Redemption Option – Estimate the true value to you for each option, so you can get the most. For example, I got 25% more for a car rental I was going to pay for anyhow, versus getting gift cards for groceries.

Use Your Bonuses at the Right Time – If you’re staying three nights at a hotel and have points to pay for one of them, use them for the most expensive night (if there is a difference). If you have gift cards to use for groceries, wait until you are between credit card signup offers to use them. Remember…

To maximize your profit make as much spending as possible to count toward those credit card bonuses.

Go Beyond Normal Purchases – Normally you want to make ordinary purchases with your cards in order to meet your requirements. But you could try “manufactured spending,” a term which refers to using a credit card to buy cash equivalents and things that can be converted into cash in order to get points or signup bonuses. That, however, is a 1,000-word topic of its own, so I’ll save it for an upcoming post (sign up for my mailings if you haven’t already, so you’ll know when I write that one).

Your Thoughts: What’s the most you have made in a year from credit card bonuses, and can you offer any additional tips?

Photo Credit: GotCredit on Flickr.com