How Best to Use Credit Cards

The best way to use credit cards is to maximize rewards while avoiding all fees.

Credit cards allow you to buy things before you have the money in your bank account. We all know that. If you don’t pay attention to what you are spending, you may not be able to pay off the credit card when the statement comes. That will cost you a lot of money in fees and interest. If you use credit cards wisely, you can avoid all fees and make some money in the process.

NOTE: I get nothing for any of these links. I am not a registered affiliate for any of these cards.

The number one most important thing when you use credit cards is to carry a zero balance. I use credit cards for convenience and for rewards. I consider it a game. If you carry a balance, the ridiculous interest payments immediately outweigh any reward you get. I usually use cashback cards. If you play the game, you can get 5% back on a lot of charges and at least 2% on everything. A single 10% interest payment on an outstanding balance negates it all.

Don’t pay fees. I don’t have any cards that carry an annual fee. If you have a fee of $100, you have to get 3% back on over $3000 in charges to get your money back. There may be a few exceptions where it is worth the annual fee, but I don’t believe in doing it. If you cannot pay your entire balance monthly, or you can’t pay on time, incurring a late fee, then you are better off without credit cards.

Here, I will describe how to pay most of your bills and get the best cashback. If you know a better way, please let me know so I can try it.

Amazon: If you are an Amazon Prime Member, use the Chase Amazon Card. You get 5% back on all charges at Amazon. It’s a no-brainer. I bought a $600 Weber grill, which got me $30 cash back.

Target: If you go to Target or use Target.com, get the Target Circle Card (formerly the Target Red Card). With it, you get 5% off everything you buy in the store or online.

Costco: If you belong to Costco, I strongly recommend the Citibank Costco Card. Sam’s has a similar card; I had it when I was a member of Sam’s, but I prefer Costco in every way, including the card. You get significant cash back. Until a few years ago, the money back had to be used at Costco. That was fine, but when you use the rebate check, you can’t get the 2% cashback for using the card. If your check is over $500, you can transfer the money to any bank. The following section applies if you use the Costco card, and it mostly applies for Sam’s.

Travel: Costco card gives you 3% back. That is generally better than any travel card. The airlines cards don’t deliver benefits better than 3%. Also, the fee is quite high if you get a high-end travel card, like the Delta Reserve. You, of course, only get the rewards when you use that airline. So, I used to use a Delta Amex card, but frequently, United or American had a much better deal or time than the Delta flight. Of course, I have a free membership with all airlines, but I don’t want to spend an extra $300 for a Delta flight to get the reward, especially if the times aren’t good. Use Costco for all travel: Hotels, flights, everything. The reward is cash. Note that Airbnb and VRBO don’t qualify for the 3%.

Restaurants: Sometimes cards with rotating categories give 5%, but the Costco card gives you 3% all year round. If you eat out a lot (I don’t), you may consider using the Custom Cash Card for restaurants. See below under groceries.

Verizon: The Verizon credit card allows you to get $10 off your monthly bill if you autopay with this card. It may only last a year, but that is $120.

Gas and electric charging: Again, use the Costco card. It gives you 4% back at any gas or EV charging station. You don’t have to go to Costco for gas, but it is usually cheaper.

Groceries: I use the Citibank Custom Cash Card. If you eat out more than you buy groceries, you could use the Custom Cash card for restaurants and something else for groceries. Custom cash is cool. Whichever category of purchase you do the most for the month, you get 5%. Everything else is 1%. I use it for groceries and only groceries. Then, I get 5% back on all groceries and 1% of nothing. Therefore, it gives me 5% back on groceries. Again, if you go out a lot, use it for restaurants.

Two Categories of your choosing: With the awesome U.S. Bank Cash+ card, you choose two categories every month to get 5% back. They make you choose a category for 2%, but that doesn’t beat the two cards in the next section. For the 5% I choose internet and streaming, and ground transportation. So my internet is with Mediacom, and I get 5% on that and Sling TV. I also get 5% on Uber.

Apple is easy. Get the Apple card. It gives you 3% on every Apple purchase, including apps and subscriptions.

Everything Else: There are two excellent options. The Citibank Doublecash card. You get 1% when you charge it and 1% when you pay the bill. But you shouldn’t have a credit card if you don’t pay the entire balance every month. So, I get 2%. The other is the Wells Fargo Active Cash. I have them both, mainly so I have a backup in case something happens to one of them.

This is a lot of information. You may not qualify for some of these if you don’t have good credit. Also, I don’t know whether having so many credit cards can adversely affect your credit score. I have been told that if you pay off every card every month, your score improves, but you should check that out.

If you charge a lot, avoid all fees, and always pay on time, this is the best way to use credit cards. You can get hundreds or even thousands of dollars back. Don’t forget, if you pay fees or carry a balance, the best way to use credit cards is not to use them.