Using credit cards strategically can help you reach your financial goals. You just have to be smart and disciplined when using them.
When I got my first credit card in college, I was responsible with it. I used it once or twice a month for a small purchase and made sure to pay off the balance. But then I started overspending and got myself into a mountain of credit card debt.
Over $10,000 to be exact. But it wasn’t the credit cards fault. It was my fault. I didn’t realize that I was depressed and had low self-esteem. Buying things made me feel good. Once I addressed my issues, I was able to get out of credit card debt .
Use Credit Cards Strategically
After taking some time off from credit cards, they are now my primary form of payment. I use them on almost every purchase I make. And I pay the balance off in full each month.
Why do I use credit cards? I get rewards! Using credit cards strategically has allowed my wife and me to fly first class round trip for our honeymoon. Using credit cards strategically has allowed us to invest thousands more for our future.
How do you take advantage of credit cards so you can profit? Below is my 6 step plan to using credit cards strategically.
1. Assess Your Credit Cards
Your first step is to write down what credit cards you have. Make a list of each and write down what the rewards are. Do you get 1% cash back? Maybe you get 1 mile per dollar spent? Whatever the rewards are, write them down.
2. Review Expenses
Now I want you to look over your spending. If you have a budget this will be simple. If you don’t budget, download some recent bank and credit card statements and see where you tend to spend your money.
For us, it is at grocery stores, gas, restaurants and Amazon.
If you have any new expenses coming up, like a new child or are going to remodel, be sure to note this as well.
3. Assess Goals
Your next step is to understand what your goal is. Do you want to travel for little to nothing ? Do you just want cash back?
When I first started, the goal was to travel for free. But using credit cards strategically for this took too much time and energy. I had to figure out who partners with whom, what the transfer rates were, etc. I didn’t want this to become a job. I wanted it to be effortless.
So I switched goals to earning cash back . Just earn as much cash back as possible.
Sit down for a little and figure out what your goal is. Also be sure to take into account the time commitment it might take to see if your goal with credit cards is even worth the effort.
4. Compare Goals and Cards
Now that you have your goals, know where you shop, and what your rewards are, do they match up? Chances are you have gaps.
For example, I started out with an American Express Gold Card. I was getting points, which was great, but I wanted cash back. So I switched to the American Express Blue Cash Card. It offered me cash back and bonus cash back at grocery stores and gas stations.
I also had a Citibank card that gave me Thank You points. Again, not worth it since I wanted cash back. So I switched to the Double Cash card .
Note in both cases, I stuck with the same credit issuer and had my account transferred. This allowed me to keep my credit history and not lose it. After all, I was a Citibank card holder for close to 20 years! I didn’t want to lose that history.
5. Determine What Card to Use Where
Ideally, you should have your biggest spending categories covered. All that is left to do is remember which card is used when. This is simple to do after a month or so. For me, it looks like this:
- American Express: use for groceries and gas only
- Citibank: use for everything else
- Discover: use for gas, dining out, home improvement and Amazon when the rotating 5% category is in play. See the Discover Rewards Calendar .
If you find a big spending category, like groceries isn’t covered, you will want to research new potential cards to open up. See list of cash rewards categories .
6. Review Everything
Now that you have everything set up, take a little bit of time to review everything. For example, when I did this process, I realized that Amazon was not covered. I found the Amazon Chase card  that offered 3% cash back on Amazon purchases.
While I could have opened a new account, I decided against it. With my Citibank card, I get 2% cash back. That extra 1% isn’t worth it. Plus, my Discover card tends to offer 5% cash back at Amazon around the holidays which is when we spend the most at Amazon.
After reviewing everything, I was happy with our plan.
Once you have everything set up, you might think there is nothing left to do. But if you are looking at a cash back strategy there is. When you earn cash back, most credit cards allow you to cash in your cash back as a statement credit.
The way this works is say you have $100 in cash back. Your statement balance is $200. You can have your $100 cash back applied to your balance and pay only $100 from your checking account. Your bill will be paid in full.
This is great but it doesn’t help you get ahead financially because you didn’t do anything with the $100 you saved by using your cash back.
You have to transfer that money to a savings account  or investment account. For us, I wait until the cash back gets to around $300. Then I use it as a statement credit and immediately set up a transfer from our checking account to our investment account. This ensures the money was earned through cash back actually benefits us and helps us to get ahead.
In the end, if you can use your credit cards strategically, you can come out ahead. I am most comfortable with just earning cash back as it is the simplest option for me. It doesn’t take any work on my end and it was easy to explain to my wife and incorporate her into the process.
If you want to use your credit cards for travel rewards , just know there is going to be a few more steps involved to make sure you are getting the most out of your credit cards.
Do you use your credit cards strategically for cash back or rewards?