The Best and Worst Ways to Earn Credit Card Rewards

Some people don't take too much interest in rewards credit cards. They might use a cash back card or a travel card, but they don't spend time looking for opportunities to earn more. They just pay with their card and occasionally cash in their rewards.

Others become full-blown rewards enthusiasts. They're always looking for ways to earn more and get more value from their cards. I fall into this group.

I've tried and heard about all kinds of methods to earn more cash back or points. Some work well, while others are risky and could even lead to losing money. Here's a guide to which to try and which to avoid.

The best ways to earn credit card rewards

Here are the best strategies I've found for earning credit card rewards, starting with the basics.

Put (almost) everything on your credit card and pay the bill in full

Since rewards cards earn cash back or points on your purchases, it makes sense to use them for all your spending. Groceries, restaurants, concert tickets, going to the movies -- there's no reason to give up an opportunity to earn rewards.

Some transactions have an extra fee for credit card payments. For these, check if you'll earn more in rewards than the cost of the fee. For example, I pay my taxes with a credit card every year. It's convenient, and I use a card that earns 2%, more than the 1.82% fee, so I come out ahead.

There's one extremely important rule to remember: Never carry a balance on your credit card. To make money from rewards, you need to pay your card's full statement balance to avoid interest charges.

Open new cards and earn welcome offers

The quickest way to earn rewards is with welcome offers. You've probably seen that many credit cards have bonuses for new cardholders. For example, earn $200 bonus cash back after spending $500 in the first three months, or earn 60,000 bonus points after spending $6,000 in the first six months.

If you're confident you can manage multiple cards, consider occasionally opening a new one so you can earn another welcome offer. I usually open two or three cards per year for this reason. It's more to manage, but it also pays for lots of my travel expenses.

Pick rewards cards that fit your spending habits

Many rewards cards have bonus categories. Gas and groceries are a common combination, but some cards also earn extra on dining, travel, streaming services, and much more.

Take a look at your monthly expenses to see where you spend the most. Then, choose a rewards card that earns bonuses in as many of those areas as possible. Or, if you don't have any spending categories that stand out, you could go with a card that earns 2% on everything.

Even better, carry a few credit cards with different reward rates. Let's say you travel and go out to eat often. You could have one card that earns 3% or more on travel and dining, and another that earns 2% on all your other expenses.

The worst ways to earn credit card rewards

Some of the methods people use to earn rewards are more trouble than they're worth. Here's what I wouldn't recommend.

Spending more than you can afford to earn a welcome offer

Bigger welcome offers often have bigger spending requirements, too. For some of them, you need to spend $5,000, $10,000, or more in the first three months.

I know it's tempting to go for big bonus opportunities. Before you apply, make sure you can meet the spending requirement with your normal expenses. If you spend $1,500 per month on your credit card, don't go for a welcome offer that requires you to spend $10,000 in the first three months. It's never a good idea to overspend for credit card rewards.

Manufactured spending

Manufactured spending is basically an attempt to hack credit card rewards programs. It involves making a purchase, turning that purchase into cash, and using the cash to pay your credit card bill. If it works as planned, you earn rewards without needing to spend anything.

I've done a lot of research on this. While it seemed like a cool idea at first, I now think it's a waste of time. There's no safe, reliable way to manufacture spending. All the methods people come up with have serious flaws.

For example, one of the most popular methods is to use your credit card to buy a prepaid gift card. Then, you use the gift card to buy a money order, deposit the money order to a bank account, and use that money to pay your credit card bill.

But many stores won't let you buy money orders with prepaid gift cards anymore. Even if it works, you'll pay fees for the prepaid card and the money order. You're also spending time and gas when you drive to the store. Manufactured spenders may feel like they're winning the rewards game, but I doubt most even make the equivalent of minimum wage from this hobby.

Making the most of rewards credit cards

It's not hard to earn more credit card rewards. The best approach is to find cards that fit your spending habits and use them as often as you can (on your regular bills). If you don't mind opening new cards every now and then, that also helps, since you'll be able to earn more welcome offers. Do that consistently, and you'll earn far more cash back or travel rewards.