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Credit card programs offer some serious perks, from cash back to free flights. Savvy card users know how to get the most out of these rewards without overspending, and one way to play the credit card rewards game responsibly is to buy gift cards.
Some credit card rewards programs come with introductory offers that require you to spend a certain large amount within the first few months. If you're not sure you can spend that much in that time frame, you don't want to buy unnecessary stuff just to meet the limit.
Instead, John Ganotis, cofounder of Credit Card Insider, suggests buying a gift card in a large amount and then using it to make purchases throughout the year. For example, if you know you'll spend $1,000 at Amazon throughout the year, you might consider buying a gift card in that amount. You'll hit the required amount for rewards, and you can use it for stuff you'd buy anyway.
Business Insider points out that this method can work beyond those introductory offers, too:
...his strategy could be useful at other times as well, like when you have a surplus in your monthly budget, but know next month will be tight. By paying for future purchases in advance with a gift card — of course, it doesn't have to be for Amazon — you can both keep your budget balanced and give your credit card some heavy use.
Of course, there are a few important factors to keep in mind with this method. First, you want to make sure you actually have the funds to pay off those gift cards. In fact, you want to make sure you have the funds to pay off any balance on your rewards cards. Otherwise, you're simply getting into debt. Second, using that much credit at once could cause a temporary spike to your credit utilization, which affects your credit score (Again, if you pay it off, this will drop, though). And, finally, as Ganotis himself points out, some cards actually forbid this practice, calling it a "manufactured spend." So you'll want to check your card's fine print first.
For more detail, check out the links below.
8 Ways to Maximize Your Credit Card Rewards | U.S. News and World Report via Business Insider
Photo by 401(K) 2012.
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