Credit card rewards can be worth hundreds or thousands per year—if you play the game right. But the house always has an edge.
Watch Out
Rule #1: If you carry a balance, rewards don't matter. Interest will always cost more than rewards earn. Pay in full every month or skip this lesson.
The Golden Rule
Never spend more just for rewards.
Rewards are a rebate on spending you'd do anyway—not a reason to spend.
Types of Rewards
| Type | How It Works | Best For |
|---|---|---|
| Cash back | % back on purchases | Simplicity |
| Points | Points per dollar, redeemable | Flexibility |
| Miles | For airline/travel | Frequent travelers |
Cash Back Categories
| Card Type | Example | Rewards |
|---|---|---|
| Flat rate | Citi Double Cash | 2% on everything |
| Rotating categories | Chase Freedom Flex | 5% on quarterly categories |
| Tiered | Blue Cash Preferred | 6% groceries, 3% gas, 1% else |
The Math on Rewards
Example: $2,000/month spending
| Strategy | Annual Rewards |
|---|---|
| 1% cash back card | $240 |
| 2% flat rate card | $480 |
| Optimized multi-card | $600-900 |
Pro Tip
A simple 2% card beats complicated strategies for most people. The extra $100-200/year from optimization isn't worth the hassle unless you enjoy it.
Simple vs. Optimized Strategy
The Simple Approach
One 2% cash back card for everything.
- Citi Double Cash
- Wells Fargo Active Cash
- Fidelity Rewards
Easy. No thinking required.
The Optimized Approach
Multiple cards for different categories:
- 5% groceries card
- 5% gas card
- 3% dining card
- 2% everything else
More rewards, more complexity.
Avoiding the Traps
Avoid This
Trap 1: Annual fees that don't pay off A $95 fee needs to earn $95+ in extra value vs. a free card.
Trap 2: Spending for sign-up bonuses Don't buy things you don't need to hit a bonus.
Trap 3: Carrying a balance "just once" 20% destroys any rewards earned.
Trap 4: Too many cards Hard to track, easy to miss payments.
Sign-Up Bonuses (The Real Money)
The biggest rewards come from sign-up bonuses:
- "Spend $3,000 in 3 months, get $200 back"
- That's 6.7% return on that spending
Do This
If you can meet spend naturally:
- Apply for card with good bonus
- Use it for normal spending
- Hit the bonus threshold
- Collect reward
- Decide whether to keep the card
Never manufacture spending or go into debt for bonuses.
The Impact
Each new card application:
- Hard inquiry (small, temporary score drop)
- New account (lowers average age)
- Higher total credit limit (helps )
For most people, the score recovers in a few months. But don't go overboard.
My Recommended Starter Setup
- One no-annual-fee 2% card for everyday use
- A 5% category card if you have high spend in one area (groceries, gas, Amazon)
- That's it until you're comfortable
Quick Win
Check your current card's rewards rate. If it's less than 2% and you pay in full, consider switching to a 2% cash back card. That's free money you're leaving on the table.