Best Rewards Cards To Get Out of Debt 2019

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.

 

Hidden 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:

  1. Large cash back for purchases Or
  2. Rewards for everyday purchases
  3. 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.)

Get it 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.

Get it here*

 

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!

Get it here*

 

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.

 

Final Word

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.

How I went from very poor to very good credit in 45 days

Not to long ago, I went from very poor to very good credit in 45 days. My wife and I were under crushing financial debt. I mean we still are, but the payments at the time far exceeded what we were actually able to handle. I had a pay cut from work a few months earlier, which we had not recovered from. We were behind payments, our credit scores were both shot and my wife was on maternity leave. We were definitely not in a good place. To handle payments we were using our savings. Savings which, by this time were nearly exhausted. We were considering some pretty serious options, like declaring bankruptcy.

 

Then Came an Angel

No, not really, but a friend of ours told us about a financial trick he knew about. A trick to open a bunch of 0% interest credit cards and reset your credit score in 4 – 6 weeks. “Even better…” he said, between my wife and I, we could keep our debt on 0% cards in perpetuity. Sound to good to be true? Let me tell you about a hack so outrageous, so ridiculous, so crazy, that I can not in good conscience actually recommend you do this. But I did it, and it worked. Here’s the true story…

 

Disclaimer: What you are about to read should not be taken as financial advice. In fact, it is a perfect example of something you should not do. What I am about to describe is the way I quickly achieved a solution to a big problem I had. However, this solution is extremely high risk. I can not in any capacity recommend anyone actually do what I will be describing below. Unless you are in the most dire of financial situations, even then, do not do this! I am not a financial advisor. Anything I say and or write regarding finances should not be construed as professional or expert financial knowledge.  You have been warned.

 

The Setup

So the first thing my wife and I did was find a friend, a very, very good friend. One who was not only an extremely good friend but one who was also willing to basically take on all of our debt for about two months, and who had excellent credit. Let me tell you, you’ll find out who your true ‘lifer’ friends are if you have one that will agree to this.

 

After getting our friends agreement for this, she (and her husband) needed to open as many long term 0% offer credit cards as they could. (See the Difference between a Hard and Soft Credit Check for more information on how this can affect your score.)  Then, after receiving them, combining as many as they could onto one card. So for example, for 3 different Chase cards at 10k each, they would now call Chase and ask to combine all the cards into one so that they have one card with a 30k limit. This was not necessary but just made it easier to track everything.

 

The Transfer

With the cards open and received, we then worked with our friend to do balance transfers of all of the debt onto her 0% cards. The purpose of this step was to clear all debt from our records. The only things remaining on our end was our house mortgage, car loan and a small amount on a personal line of credit. Then from there we just waited.

 

The Waiting Game

An interesting piece of information about the credit reporting bureau’s (Equifax, TransUnion, and Experian) is that they generally update right when a request to pull your credit is made. Another interesting tidbit, is that credit card companies generally report changes to status once a month. (Read this article from Nerdwallet for more details.) Depending on when in the month the credit card company reports to the agency, it’s possible to see a credit change in as little as 1 week, and a maximum of 6 weeks. So, we waited. I do want to point out that during this waiting period, we had already made agreements with our friend to cover any credit card bills that came in while the debt was in her name. And so we did.

 

The Return Transfer

If I remember correctly it took us just about 4 weeks before the score changed. And WOW did it change! From a Very Poor to Very Good credit rating in only 4 weeks! It felt like magic! Of course it wasn’t magic, if anything it was deception… but I digress. From here the plan was simple, make sure that moving forward, we could keep all the debt at 0% interest until it was paid. The reason we needed a friend to offset our debt was so that both of us could ‘reset’ our credit scores.

 

With our credit scores reset, my wife just duplicated what our friend did. She opened up as many 0% cards as possible, consolidated them and then transferred the debt back over from our friend to only her. This point was important. This plan wouldn’t work if we split the debt between us. Why? Because one of us has to maintain excellent credit, so that when the time comes and those 0% start to expire, we can simply transfer the debt over to me. In this way, switching off every year and a half or so, the debt can be kept on 0% cards in perpetuity.

 

What to Beware of

Where do I even begin. There are so many potential risks to this strategy that it’s why I could never actually recommend it to anyone.

 

First, beware that most banks do charge a transfer fee. When we went through this process we not only looked for long term 0% offers, but also for nothing greater than a 1% transfer fee. The way this works is the bank charges 1% of the total being transferred over as the ‘fee’ of doing so.

 

Example

If you are transferring 30k, the bank would charge $30,000 * 0.01 = $300. This amount is usually added on top of the amount transferred over, not as a separate bill. Keep in mind, however, that this is up to the bank! When my wife and I did this we made sure not to apply for anything with more than a 1% fee.

 

Second, if you do this with a significant other, the person who’s debt is not in their name must maintain good credit. Not doing so will put you right back in the same situation of needing a friend. Don’t treat your friends so poorly!

 

Third, remember that banks can change the rules of the game at any time! This works right now because interest rates, the economy etc. are going in such a way that some banks don’t mind extending large amounts of credit, that they don’t mind having a lot of long term 0% offers on the market etc. It’s important to remember however that this could change at any moment.

 

Lastly, Remember that banks have the right to collect on all outstanding debt at any time! It’s their money after all and if they want it back, there is little to nothing you could do about it except pay.

 

Why We Did This

At the time my wife and I did this, we were paying an absurd amount of money in interest. The amount we were paying in interest far exceeded what we could actually afford. Even including the 1% transfer fees we needed to pay on all the debt we were moving (both ways,) those fees combined were still less than the interest we were paying in a month. Now that it is done, we have all our debt on 0% cards, which means every payment is pure principle. In addition, the payments are now within a budget-able amount, instead of in excess of what we bring in every month.

 

Final Thoughts

This is how I got excellent credit in 45 days. I will point out and stress, however, that having excellent credit does not mean “good with money.”  If you are reading this thinking any part of this sounds like something you should do. Or worse, if you fee like it is something you “need” to do. Then the first thing you really need to do is learn how to properly deal with and handle money. My true story here is not an example of how to do so, quite the opposite. I recommend starting here.