The Easiest $486 I've Ever Made: How To Use Cash Back Credit Cards To Your Advantage - Frugalwoods (2024)

Content warning: I am talking about some EXPLICIT credit card rewards today. There will be actual numbers, real percentages and even specific cards discussed. If you’re a person who doesn’t do well with credit cards, if cards encourage you to spend more than you can afford and go into debt, I want you to stop reading this article and instead go look at this panda who traded her baby for an apple… I mean, maybe it was a really good apple?

If you are like, YES, I too like apples and am a responsible credit card person, and I too want to earn money for using a credit card the right way, then read on! Your road to riches is below. Actually not riches, but perhaps $486.

My 2020 Cash Back Total

I made $486.36 in 2020 by using my cash back credit card. Is this a ton of money? No. But is this money that was really, really easy to earn? Yes, yes it is. Using a cash back credit card to buy stuff you’re going to buy anyway is one of the easiest, most straightforward ways to leverage your spending.

What is this I’m talking about? A cash back credit card returns a specified percentage of your total purchases to you every month. For example, if you use the American Express Cash Magnet® Card, you will get 1.5% of your spending on that card back every month. If you spent $1,000 on that card in the month of March 2021, you would get $15 back because 1.5% of $1,000 = $15.

So this is not your route to fabulous riches raining down on your head, but it is a super simple way to earn money when you buy the stuff of life (groceries, gas, doctor visit co-pays, chicken feed, wart remover… that got real specific there, Mrs. Frugalwoods… ).

Uh, at any rate, here’s the spreadsheet I made of how my cash back earnings broke down over the course of 2020. I used my Fidelity Rewards Visa card, which offers a flat 2% cash back on all purchases:

To be clear, this isn’t all of my 2020 spending, it’s just the spending I did with my cash back credit card. If you want to see all of my expenses in painful, granular detail, check out my Monthly Expense Reports.

Advertiser Disclosure: Frugalwoods partners withCardRatingsfor coverage of credit card products. Frugalwoods and CardRatings may receive a commission from card issuers at no extra cost to you.Here’s a boring (but important) explanation of how Frugalwoods makes money. The credit card links in this post are affiliate links.

Responsible Credit Card Usage

Before I write another word evangelizing the glory of cash back credit cards, I want to spend a moment outlining responsible credit card usage. Credit cards have a serious ability to be Dickensian: they can be the best of times or they can be the worst of times. This 100% depends on how you use them.

If you have a history of credit card debt and if you know that having one only prompts you to spend more than you can afford, go ahead and close this article. Don’t do something that won’t set you up for success.

Not using credit cards isn’t a failing, it’s an important element of knowing yourself and your financial proclivities.

Conversely, if you’re confident in your ability to use a credit card responsibly, it’s a fabulous way to earn something for nothing.

Here’s a quick checklist to ensure you’re doing it right:

When I Get a Credit Card:

1. I will only buy things I was going to buy anyway.
2. I will not view a credit card as carte blanche to buy whatever I want, knowing I can’t actually afford it.
3. I will pay off my credit card balance in full and on time every month with no exceptions:
   • It is 100% false that keeping a balance on your credit card improves your credit score. IT DOES NOT.
   • What can improve your credit score is keeping a credit card open and FULLY paid off for many years.
   • Paying your card off in full does not mean paying the “minimum amount due,” it means paying the full balance, such that your balance = $0 after you’ve made your payment.
4. I will close my credit card account if I find that I cannot consistently adhere to the first three rules. I promise.
5. Furthermore, I will not try to game the system by opening and closing a ton of different credit cards as I understand this can hurt my credit score.
6. If I cannot do these things, I will not feel ashamed, I will feel empowered that I know myself. I will stop reading this article and will instead go look at this panda who traded her baby for an apple… I mean, maybe it was a really good apple?

How Do I Choose a Cash Back Card?

If you’ve taken the above quiz and feel confident in your ability to use credit cards responsibly and correctly, let’s get to it! Today I’m going to focus on cash back credit cards only, but the other type of credit card rewards are travel rewards, which I discuss in these posts:

• Travel Rewards, Flying With Two Toddlers, And A Free Hotel Stay
• The Best Credit Cards (and Credit Card Rewards!)
• The Frugalwoods Guide to a Simple, Yet Rewarding, Credit Card Experience

Back to the cash back: there are two basic types of cash back credit cards, those with categories and those without. A card with categories offers different cash back percentages on different types of purchases. A card without categories offers a flat cash back percentage regardless of the type of purchase. Let’s dig into some examples.

To Category or Not to Category

Choosing between “category” and “non-category” cash back cards totally depends on how active you want to be in tracking which credit card you use at any given time. “Categories” of cash back mean that a card offers different cash back percentages based on where you use it. Here’s a real-life example of how this can break down:

The American Express Blue Cash Everyday® Card offers a hierarchy of cash back percentages:

• 3% Cash Back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%)
• 2% Cash Back at U.S. gas stations and at select U.S. department stores
• 1% Cash Back on other purchases
• Earn $200 back if you spend $1,000 in in the first three months of having the card
• No annual fee

The advantage with this card is that 3% cash back is a really high percentage. However, you’d have to be cognizant of the $6k annual limit on the 3%. Plus, 1% is a really low cash-back percentage, so if you don’t buy a ton of groceries or gas, you’d end up getting a bad deal. On the other hand, if you know you spend at least $6k per year on groceries, that’d be a minimum of $180 in cash back every year (because 3% of $6,000 is $180), which is great!

Here are a few other category-specific cash back cards:

Capital One SavorOne Cash Rewards Credit Card:

• 3% cash back on dining and entertainment
• 3% at grocery stores (excluding superstores like Walmart® and Target®)
• 1% on all other purchases
• Cash back won’t expire for the life of the account; no limit to how much you can earn
• Earn a one-time $200 cash bonus after you spend $1,000 on purchases within the first 3 months from account opening
• No annual fee

Chase Freedom Unlimited®:

• 5% cash back on travel purchased through Chase
• 3% on dining at restaurants and drugstores
• 1.5% on all other purchases
• No annual fee
• No minimum to redeem for cash back, rewards do not expire as long as your account is open
• Earn $200 if you spend $500 in your first 3 months from account opening

Rotating Categories: The Next Level

If you’re super organized and want to really rack up cash back offers, there are a number of cards that feature rotating categories of cash back. What this means is that the percentage they offer for certain types of purchases changes throughout the year. This requires judicious tracking, but if you’re up to it, you can earn as much as 5% cash back, which is–I think–about the highest you can go on cards without an annual fee (more on those in a moment).

Here are a few cards with rotating categories:

Chase Freedom Flex℠:

• 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate with new 5% categories each quarter
• 5% on travel purchased through Chase
• 3% on dining at restaurants and drugstores
• 1% on all other purchases
• No minimum to redeem for cash back. Cash Back rewards do not expire as long as your account is open.
• Earn $200 if you spend $500 in your first 3 months from account opening
• No annual fee

U.S. Bank Altitude® Go Visa Signature® Card:

• Earn 4X points on takeout, food delivery and dining
• Earn 2X points at grocery stores, grocery delivery, gas stations and on streaming services ($15 credit for annual streaming service purchases such as Netflix and Spotify)
• 1X point per $1 on all other eligible purchases
• Earn 20,000 bonus points when you spend $1,000 in eligible purchases within the first 90 days of account opening. That’s a $200 value redeemable towards merchandise, gift cards, cash back, travel and more
• No annual fee, points never expire

What this boils down to is knowing your spending habits and your personal preference for using multiple credit cards.

I’ve heard from savvy readers that they put sticky notes on their credit cards to remind them of the cash back categories. So, for example, they’d only use their American Express Blue Cash Everyday® Card at the grocery store and the gas station and they’d toggle to their Chase Freedom Flex℠ for restaurants and then would use theirCapital One Quicksilver Cash Rewards Credit Card for all otherpurchases.

This is a totally awesome system and works really well if you’re super organized and don’t mind putting little notes on your credit cards. If you are more like me and often need to sort of toss your wallet in the direction of the cashier while one or both of your children attempt to scale your body, you may be better off with a card that offers a flat cash back percentage.

Category-Free Flat Cash Back Percentage Cards (aka the easiest to use)

The benefit of a category-free cash back card is that you don’t have to keep track of varying cash back percentages. It’s the same percentage back no matter where you use it or how much (or how little) you spend on the card. This is handy if you want to set it and forget it. You get the card, you start using it and you get money back. It’s the absolute easiest way to earn credit card rewards. The downside is that category-free cards usually offer a lower cash back percentage.

Here are a few examples of category-free, flat cash back percentage cards, which by the way, have no annual fee. You definitely shouldn’t pay an annual fee for a straightforward, category-free cash back card.

American Express Cash Magnet® Card:

• Unlimited 1.5% cash back on all purchases.
• Earn a $150 statement credit after you spend $1,000 or more in purchases within the first three months of card membership

Capital One Quicksilver Cash Rewards Credit Card:

• Unlimited 1.5% cash back on all purchases
• Earn $200 if you spend $500 or more in purchases within the first three months of card membership

Should I Pay An Annual Fee?

Probably not and most cash back cards don’t have an annual fee. However, if you do the math and calculate that an annual fee is worth it based on your spending patterns, there are indeed higher rewards to be had on cards with annual fees, such as the:

American Express Blue Cash Preferred® Card:

• 6% Cash Back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%)
• 6% Cash Back on select U.S. streaming subscriptions
• 3% Cash Back at U.S. gas stations and on transit (including taxis/rideshare, parking, tolls, trains, buses and more)
• 1% Cash Back on other purchases
• Earn a $300 statement credit after you spend $3,000 in purchases on your new Card within the first 6 months
• Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit
• $0 introductory annual fee for one year, then $95

The obvious advantages here are the 6% cash back opportunities. If you spent $6k on groceries in a year, you’d get $360 back, which on its own would more than legitimize the $95 annual fee.

However, if you aren’t mindful of the categories on this card and–crucially–if most of your spending doesn’t fall under supermarkets, streaming subscriptions or gas stations/transit, you’d be relegated to 1% cash back, which would likely make the $95 fee a bad deal. But I have to say, the 6% cash back on grocery stores is very appealing to me since we definitely spend more than $6,000 a year to feed our family.

To Use a Credit Card Effectively, You Have To Track Your Spending

Oh my goodness, Mrs. Frugalwoods, are you seriously going to tell us AGAIN that we have to track our spending?! Yes, yes I am. I am the mosquito in your ear that can’t stop, won’t stop reminding you to TRACK YOUR SPENDING.

What you spend forms a crucial basis for how you manage your money. People love to talk about income, which is cool and very important, etc, but it means nothing if you spend it all. If you make $500k per year and spend $500k per year, you have a net worth of $0, whereas if you make $100k a year and save half of it, you have $50k in the bank! Just saying.

Knowing what you spend is important in the context of credit cards because it will help you calibrate which type of card is going to deliver maximum rewards.

As you all know, I use and recommend the FREE expense tracking system from Personal Capital(affiliate link). I like Personal Capital because they don’t just do expense tracking, they offer a slew of other insights into your overall financial picture. I wrote this post explaining how in case you’d like to learn more.

In Conclusion:

1. Do not trade your baby for an apple (looking at pandas everywhere… )
2. Do not get a credit card if you know you won’t be able to pay the bill in full and on time every month
3. Do get a cash back credit card that matches your spending patterns and propensity for organization
4. Do reap the rewards of responsible credit card usage. And then tell me about it because I love nothing better than a feel-good credit card rewards story.

Advertiser Disclosure:Frugalwoods partners withCardRatingsfor coverage of credit card products. Frugalwoods and CardRatings may receive a commission from card issuers atno extra cost to you.

Editorial Disclosure:Opinions, reviews, analyses and recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.

What credit cards do you use? If your card has categories, how do you keep track?