January 25, 2011

Make Your Credit Cards Pay You

If you are a responsible user of credit cards, your credit cards can make you money. Just remember to pay off balances every month. Then find a credit card that has a cash rebate program. You can see your options at BankRate.com or other similar sites. I like the Chase Freedom and the American Express Blue Card, but there are several similar cards, like Discover and Capital One. Once you've got the plastic, use your cash back card for as many purchases as you can. The drawback to these cards is the high interest rate you have to pay if you carry a balance. The Bank is betting that you will slip up, so DON'T. Play by their rules and beat them at their own game. You must pay your balances in full each month!

Another way to make money from your credit cards is to take advantage of the 0% interest balance transfer programs offered by some banks. You must be selective and choose only those offers that have a reasonable upfront charge. If you pay 3% or 4% of your cash withdrawal as an upfront fee, you can't win. So look for offers that have a maximum fee of $50 or $75. These offers are not as widespread as they once were, but they are still available. How do you make money? Look for offers that have an interest free period of at least six months (one year is better) and will let you advance $10,000. Then if you have a Home Equity Line of Credit, pay down that balance and save interest costs there. At the end of the interest free period, withdraw the funds from your HELOC (or another balance transfer program) to pay off the credit card. If you have the funds for a one year period, but don't have a HELOC, invest the money in a  high-yield investment account. Currently, you  invest $10,000 in a 5 year CD at 2.4%. At the end of 12 months, cash in that 5 year CD and pay off the credit card with the proceeds. You will pay a 2 month penalty for cashing the CD early, but you will still earn $200 interest on the bank's money. These numbers will get better as interest rates rise. Even if you paid a $75 fee for the balance transfer, you still have enough profit for 300 pizzas! All you have invested is a few keystrokes.

Thanks, Mr. S for the tip!

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