Mighty Bargain Hunter

Choose your credit card rebates wisely!

August 26th, 2005 | by mbhunter |

(Attention! Please consider this advice only if you do not carry a balance on your credit cards and you have complete control over your spending. The advice in this post will do you absolutely no good if you carry a balance! I’d also be careful about playing this game if you are looking to refinance or go out for some kind of big loan, because it could negatively impact your credit score a little because your average account age goes down AND your total available credit goes up.)

Having said that …

… A lot of credit cards come with rebates or rewards of some kind — airline miles, gift certificates, or cash. A few of them are pretty good deals if you use your credit cards only for convenience and not for consumer loans. The credit card companies hope that you’ll screw up and carry a balance, go over your limit, etc., so they can snatch that rebate right back, but if you’re careful they won’t get you.

Of the cash back cards (cards that give you a rebate based on your total purchases for a given period) come in a few varieties to get you to sign up:

• Rebates are given on all purchases, without limit
• Rebates have a “teaser” period where the rebates are really good, then they drop back
• Rebates are especially good for one particular store
• Rebates are especially good but they’re capped during a time period (like a year)
• Some combination of the above

I’ve found that if the rebate on general purchases is larger than 1%, the rebate is capped. Visa and MasterCard can give you 1% without limit because that’s about half of the price-based transaction fee that they charge the merchant (usually about 1.9% for swipe-type transaction, and higher for Internet transactions). They can’t give you 2% without limit because then they’d lose money up front on every transaction.

Also, I’ve found that the cards that carry a higher rebate on “special purchases” like gas, groceries, drugstore items, etc., the total rebate is capped in some way as well.

But this “capped rebate” is typically a higher percentage of the purchases than the “uncapped rebates.”

Can you use this to your advantage if you already have a rebate card? Yes, and I’ll show you how.

Consider using two rebate credit cards:

1. A card with 3% rebate on gas, 1% everything else, no annual fee
2. A card with a 5% rebate on gas, groceries, and drugstore purchases, 1% on everything else, $300 calendar year rebate limit, no annual fee

How do you make best use of these two cards (assuming that you never incur any interest charges on either one)?

1. Starting in the calendar year, use the first card for everything except gas, groceries, and drugstore purchases.
2. Use the second card only for gas, grocery, and drugstore purchases until you reach your $300 limit.
3. If the annual rebate on the second card is “used up,” use only the first card for the rest of the year.

Basically, use the card that gives you the bigger rebate at the time of purchase. Assuming that you don’t change your regular spending habits, this will put a little more money back in your pocket.

(Note: An example of the first type of card is the Chase PerfectCard™. UPDATE: PerfectCard recently added a cap of $15 per month on gas rebates. I’ve been very happy with this card and I use it all the time. Chase recently started offering the Chase Cash Plus® Rewards Visa card — I’m considering getting this one too because it has a higher rebate percentage.)

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