When you are in debt, credit cards are often villainized as the ultimate evil. The first advice almost always given is to destroy all your credit cards! Fill a bag with water, put your cards in it and throw it in the freezer! I particularly like that one, it seems the most useless of all the ones I’ve heard. Look, when you’re in debt credit cards are not the source of all your troubles. They may be greatly contributing to it, due to their high interest rates, but they are not the reason you went into debt. You are. I would argue in fact that when you are in debt, the best rewards cards can actually be a blessing in disguise. No, not because you can use them to pay for bills you otherwise can’t afford. But because if you have a solid budget in place, they can become a treasure trove of savings.
If you are wondering what hard liquor I’ve been downing or deep-end I fell off of, rest assured I’m as sober and sane as can be. What I am talking about are credit cards known as rewards cards. The concept is very simple, for using the card, you get rewarded in return. These rewards vary from redeemable points to cash back or both. Once you have a budget worked out and you are making more than you spend, a rewards card can be a very smart move.
What to Look For
I will give my recommendation on worthwhile rewards cards as the end of this article. In general however here is what you should look for:
- Large cash back for purchases Or
- Rewards for everyday purchases
- Redeemable for things you will be able to use
So why are these three things so important? Large cash back for purchases should hopefully be pretty self evident. Finding a card with the largest cash back for purchases that you can just means more in your pocket for normal purchases. Alternatively, rewards for everyday purchases is important because that just means you will accumulate more rewards for things you normally buy already. To give you a an example of cards that do not fit this bill, some will reward you for spending on travel activities like eating out or paying for hotels. If you are saving your money to get out of debt, it’s a pretty safe bet these kinds of purchases should not be your everyday norm.
Lastly, what you can redeem your points for should be for things you can and will use. Things that will either give you money or save you money elsewhere. The best of these would obviously be a credit directly to your account as is the case for cash back rewards for purchases. For other rewards, however, a visa gift card can be equally as beneficial. Things like an Amazon gift card also works if you make purchases there frequently. What you don’t want are reward redemptions that just wouldn’t make sense for your situation. For example a great mileage rewards card will be pretty useless to you if you can rarely afford to go anywhere. So make sure the rewards for the card make sense to your situation and what you are trying to achieve.
The Best Rewards Cards
As promised, here are my personal recommendations based on the information I provided above. The below cards I either presently have and use or have used so I have actual experience with all of them.
1. Amazon Rewards Visa
If you are an Amazon Prime member then this card just makes sense on so many levels. Depending on if you already have a Prime membership, which this card requires, it either does or doesn’t have an annual fee. If you are not already a Prime member then you shouldn’t get it. If you do however, then this card should just be a given. You receive 5% cash back on Amazon purchases. That alone is astounding. You get 2% back at restaurants, gas stations and drugstores, and finally you get 1% back on all other purchases. As an avid Amazon shopper and a gasoline consumer, this card hits points #1 and #2 above perfectly. Because it is also a cash rewards card, it nails #3 as well. An added treat, at the time of this writing, the card is also made of metal. You do need good credit to qualify for this card so keep that in mind. Also, it is issued by JPMorgan Chase Bank so their 5/24 rule applies (you can read more about that from The Points Guy here.)
2. Chase Freedom Unlimited®
At 1.5% cash back on all purchases, it’s hard to go wrong with this one. Once again hitting the one, two, three combo above, and no annual fee of any kind, it’s probably one of your best options on the market right now.
3. Chase Freedom®
This one is a quarterly category card. This means every quarter there are specific things that when purchases with this card will give you the largest reward benefit. For this card the reward benefit is nice, 5% cash back on anything purchased in the category for that quarter! Buying something not in the category? No problem, get 1% cash back on everything else. Similar to the Freedom Unlimited, there is no annual fee. The only caveat with this card is that the 5% cash back for a category is only good for the first $1,500 spent. If you are trying to get out of debt, you won’t be spending that kind of money each quarter anyway, or at least you better not be!
The Golden Rules
Unfortunately the way our (American) credit scoring system is designed, requires you have credit of some kind that you utilize. This makes credit cards a necessary evil. When you are in debt, there are two golden rules you should follow with credit cards. The first, don’t purchase anything that you don’t have money for in your checking account. Second, whatever you buy with them, transfer that money to that card the same day. Don’t wait for the next bill cycle, don’t sit on it to do it later.
When you are in debt, common conception is to throw away your cards! Shreddem! Keep them as far away as possible! However, these are all just gimmicks. Especially in an age where they are all easily digitized anyway (Eg. Apple Pay.) Truly getting out of debt starts with yourself, changing your own viewpoints on how you handle and perceive money. It is about being smart with your cash flow and how you use it and in that vein credit cards can actually be a blessing in disguise. This is especially true for cash back cards. You end up paying less than the cost of what you purchased. It is like having a coupon for anything and everything you buy, including bills. Just remember the golden rules, because if you are in debt, there will be no faster way to stay that way than to break them.
*Disclaimer: I am not being paid a penny for promoting these cards. The views expressed in this post regarding them are entirely my own.