Credit Card Travel Rewards: How to Maximize it

One big reason that many people sign up for credit cards is to generate rewards points that they can then use for travel. Sometimes, these rewards convert into travel benefits at a very nice rate. For example, a card might reward two miles for every dollar spent, and then those miles can be used to book cheaper flights than one can find while paying cash, or a card might be used to get free nights at a hotel chain and can be used in conjunction with a rewards program within that chain to accumulate even more free nights with frequent use.

Here are some strategies to get maximum value out of credit card rewards programs that benefit travel.

If you’re ever worried about the interest rate on a credit card, you’re probably using it wrong. You’re either looking at it because you’re carrying a balance, in which case you shouldn’t be using a credit card at all, or you’re looking at it when you’ll never be carrying a balance, in which case the rewards program is more important.

Figure out how you want to travel first.

Why are you traveling? Where do you want to go? What transportation will you use to get there? Where will you stay?

These are the types of questions you should be asking and answering before you even consider using a travel rewards credit card. Different people have very different visions of what they want out of travel.

You might be a person who wants to take one nice vacation a year, in which you fly to a city and stay at one of the nicer hotel chains for a few nights, but rarely travel outside of that. You might be someone who travels a few times a year, mostly by car, and stays at relatively inexpensive hotels. Perhaps you’re storing up rewards to pay for most of a really big trip for your whole family in a few years, like several days at Disney World.

Each of those plans would encourage the use of a different travel rewards card. Obviously, not all trips will be exactly the same, but travel rewards work well for facilitating similar trips.

For example, if you plan on staying at a nicer hotel but less frequently, you may want to look at a card that helps you stay at a Marriott, or perhaps you travel more frequently and are more budget-oriented for the frequent trips and a Best Western is a better option for you.

Similarly, if you plan on flying, you may want to consider whether an airport near you is a hub for a particular airline and then use a card that works well with that airline. For example, if you live in the Chicago area, you’d likely want to lean toward a card that works with American or United, as Chicago-O’Hare serves as a hub for that airline, and Atlanta is a hub for Delta.

The key thing to remember is this: you’re better off when it comes to credit card rewards to pick a few chains related to your travel needs and stick with them. Have a preferred airline, a preferred hotel chain, and a preferred car rental agency. If you’re planning on specific destination travel, you may want to consider a card affiliated with that destination, as it will usually rack up rewards for that destination at a nice rate.

Join customer rewards programs for the businesses you select.

Before we get around to using credit card rewards for travel, it’s a good idea to sign up for the customer rewards programs for the travel-related businesses you prefer. Since you’re already committing to regular use of those businesses anyway, their customer rewards programs will often amplify the value of using them frequently.

For example, some hotel chains will offer a free night of lodging after staying with that chain for several nights, and that can stack with credit card rewards. So, if you earn rewards from your credit card that enables a free night at a hotel in that chain, it will also effectively give you a fraction of an additional night.

It’s a good idea to sign up for these programs first because many such programs will actually link your credit card and your customer rewards account, making everything stack together nicely.

If you travel very infrequently and inexpensively, a travel rewards card probably isn’t worth it.

It can be tempting to get a travel rewards card if you always stay at the same hotel, but the truth is that if you accrue rewards faster than you can use those free hotel nights or airline miles, you shouldn’t use a travel rewards card and should use a cashback rewards card or a card that gives you a discount.

For example, if you travel perhaps once a year and only stay at a hotel for one or two nights, you will probably get more value with a rewards card that offers rewards associated with the retailer you use most frequently rather than a card that offers travel-related rewards. For someone who rarely travels but buys a lot of items on Amazon, for instance, an Amazon Visa will generate a lot more value than a travel rewards card.

For many cards, “miles” can be used with a variety of airlines and hotels, but there’s a catch.

For example, Capital One travel reward cards have several airline partners and multiple hotel chains that you can use your points with. These transfer directly into the rewards programs for those individual airlines and chains at some exchange rate— for example, 1,000 rewards points might mean 500 points in a particular hotel’s rewards program.

These cards tend to offer a lot of flexibility, but it comes at a cost. The exchange rates for cards that offer lots of airlines and chains tend not to be as good as cards associated with a specific airline or chain, as a general rule.

In other words, you should get a more general travel rewards card if the specifics of your travel change a lot and you’re not often able to use the same airlines or hotels. If you’re able to very consistently use one airline or one hotel chain or are aiming for one specific destination, you should use a card associated with that airline or chain or destination.

For example, if you intend to stay at Marriott hotels often, you should strongly consider a Marriott Bonvoy card, but if you intend to stay at a Best Western frequently, consider a Best Western card. These cards will just put points into your rewards account with those hotels, helping you to easily get free nights. You would then use those specific rewards programs for your hotel bookings.

Similarly, if you know you’re going to usually fly for travel using a specific airline, use a card associated with that airline.

You should choose a card that’s geared toward where most of your spending will be. If you’re going to regularly be buying airline tickets for two or three or four people but all stay in one room, an airline rewards card is better, but if you’re often traveling solo and for longer periods, the hotel rewards will almost always give you more value.

Focus on what you actually do or what you have concrete plans to do, rather than what you might do.

A final tip: rather than thinking about what you might do in the future, think only about what you’ve done in the past or what you’ve strongly committed to doing going forward.

For example, if you rarely travel but have a vague notion about traveling more, don’t get a travel rewards card quite yet. Instead, use a different rewards card and see if your travel actually increases in the next year or two.

If you’ve vaguely thought about a Disney vacation, don’t jump on board with a Disney rewards card yet. Instead, use a different rewards card and see if that plan starts to turn into something concrete, and then switch to the card when you start to think about actual dates and plans a year or two in the future.

If you do these things, you’ll get maximum benefits out of travel reward credit cards. Just remember the fundamentals: don’t use a credit card just to get rewards. Instead, use it as a tool to build credit and always avoid carrying a balance; consider the rewards program to merely be an extra perk for good behavior. Not sticking to that plan will cause the costs of the card to quickly exceed the benefits of the rewards.

Your First Credit Card: What You Should Know

Credit cards are a fantastic tool for building credit that can make shopping — particularly online shopping — more convenient and secure. However, credit cards come with significant risks. I should know — during college, I racked up a lot of credit card debt that haunted me for many years and drained tens of thousands of dollars from my pocket.

Credit cards are like chainsaws — they’re incredibly efficient and useful tools, but they can also be incredibly dangerous.

As my own children approach the age where they may choose to have a credit card of their own, here are 10 key pieces of advice I’ll give them before they get their first credit card.

1. Carrying a balance means credit card companies are taking cash from your pocket, and you get nothing in return.

When your bill arrives, the credit card company will certainly allow you to pay less than the full balance. You only have to make a minimum payment, which seems like a good deal at first glance.

Here’s the problem: they’re going to charge you interest on every cent that you don’t pay off, and that interest rate is high.

Let’s say you get an $800 credit card bill in the mail and the minimum payment is $28 (interest plus 1% of the balance). If you just make the minimum payment, that leaves $772 on the card. If you have an APR of 30% on the card, you just got dinged with (roughly) $20 in interest. Your balance just went up to $792. Yep, next month you still owe $792, even though you threw $28 at the card.

Not only that, you now have that $792 debt hanging over your head. Add more to it and the interest will grow, too, month after month. Minimum payments barely even scratch the balance, and that’s by design. Credit card issuers make real money off of you continually paying interest. You get nothing out of it, too. All you got was the ability to make an impulsive purchase, one that you’re paying off for months or even years, and you’re paying a lot more than that initial cost, too.

How bad is it? If you have $800 on a card with a 30% APR and a minimum payment of the interest plus 1% of the balance, it will take you 113 months to pay it off and you will have paid a total of $1,261.04. Yep, $461 just vanished out of your pocket, for nothing.

2. Never put anything on a credit card that you won’t be able to pay in full when the bill arrives.

If you’re putting something you can’t actually afford on your credit card, you’re making your first mistake. Eventually, you will have to pay for that item, and when that bill comes around, it’s going to cut into your budget for next month. You may be buying something cool now, but you’re making things very tough on yourself next month.

Rather than using your credit card to buy things you can’t afford, just treat it as a convenience that helps keep your identity and bank account safe, while also giving you some rewards. If you don’t have that cash sitting in your checking account right now, don’t buy whatever it is you have in mind. Wait.

3. Pay your bill in full every month. If you can’t, stop using the card until the bill is fully paid off.

The best approach for keeping a credit card under control is to pay off the balance in full each month when the bill arrives. This keeps interest charges from accumulating on your bill, something you really don’t want. If you’re buying things you can’t really afford, it’s going to be impossible to pay the full bill when it comes in, and that’s when the trouble begins.

If you ever find yourself in a situation where you can’t pay off the full bill, put the credit card down for a month or two and live off of your checking account until you have the card paid off in full. That way, your mistakes don’t compound on themselves.

4. If you keep the card paid off, the interest rate on a credit card doesn’t matter as much as the rewards.

If it’s not clear yet, the fundamental rule of credit cards is to never put anything on there that you can’t pay off in full when the bill arrives, and pay it off in full when the bill arrives. Doing anything else is a very costly mistake. Let’s say you do follow that rule, though. If you do, don’t worry about the actual interest rate on the card, because it means little to you. Rather, focus on the rewards offered by using the card.

5. Choose a card that earns useful rewards at a high rate based on how you currently live, because a card should not change your spending habits.

You want a card that will generate rewards based on how you already currently spend. A good rewards card should not alter your spending in any way. Rather, it should reward you for what you already do. Those rewards should be flexible and useful to you. Even if a card offers a nice rate of rewards, if those are rewards that aren’t convenient and useful for you to spend, they don’t really matter. In general, cards that offer direct cashback or offer direct discounts at the retailers you already use are the best options, particularly for new users who aren’t trying to game the system.

6. If you don’t pay your bills, there are real consequences that last.

What happens if you just don’t pay your credit card bill? First and foremost, you’ll wind up with some nasty marks on your credit report that will last for up to seven years. Not only will that make it much more difficult to get any kind of loan or credit card going forward, but it can also raise your insurance rates, make it harder to get an apartment, and even hurt you in a job search. All of those things are made much easier if you have good credit, and not paying your bill means that you have bad credit.

Not only that, they will hound you for years, and eventually turn the debt over to a collection agency, who will also hound you for years. You’ll get phone calls and letters using all kinds of strategies, some of them really nasty in tone, to get you to pay.

While it seems like an immediate solution to your problem to just throw the credit card bills in the trash, they don’t just disappear. The problem festers, and it builds into other consequences that can really hurt your career and other areas of your life. Just stick to the advice above: pay off your card in full every month.

7. A credit card is not an emergency fund, and it will fail you in many types of emergencies.

First of all, if you use a credit card in an emergency, that bill is still going to arrive, and if you’ve paid for something that you can’t actually afford, you’re not going to be able to pay off the card. You’ll be carrying a balance, and the interest will keep devouring your money while you get nothing in return.

Second, there are a lot of emergencies where credit cards don’t help. Theft is one. Identity theft is another. What do you do in those emergencies? You should strive to have a cash emergency fund sitting in a savings account at a bank where you can access it if you need it.

8. If you can’t get approved for your first card on your own, ask for a trusted person to co-sign with you.

If you apply for a card and are declined, it’s not the end of the world. There are other routes to take that will help you get a card.

The first option is to look for someone who will co-sign on a card with you, probably a parent or another very close friend or relative. Their willingness to do that is a major extension of trust because by co-signing, they’re saying that they will pay for the balance on the card if you fail to or unable to do so, and you are hanging debt on them if you don’t take care of things yourself.

Another approach is to ask if they will add you to their current card as an authorized user. In that situation, they’ll likely just cut up the card that comes in your name, but it can provide a starting point and a small boost to your credit that will help down the road when you get your own card.

What if those aren’t options?

9. If you can’t get someone to co-sign, visit a credit union and look into a secured credit card.

Many financial institutions offer another option for people who really need to build credit in the form of a secured credit card. A secured credit card is one in which you pay a certain amount upfront as a “deposit” of sorts on the card. As long as you use the card normally, it’s fine, and if you cancel the card after normal usage, you get that deposit back. However, if you stop paying the bill, they’ll use the deposit to pay it for you.

Because of that deposit, financial institutions will issue a card to someone who might not otherwise qualify for a card because of their bad or nonexistent credit. After all, they’re at reduced (or zero) risk of someone not paying their bill because of said deposit.

10. Use your credit card bill as a tool to identify your worst spending choices, so you can correct them.

Your credit card bill isn’t just a downer. It’s also a useful tool for figuring out your worst spending decisions and also a way to check for identity theft. Each month, when your credit card bill comes in, go through it, item by item. Take note of anything that seems wasteful. If you look at a purchase and it didn’t either cover something necessary or fill you with genuine lasting joy, it’s probably a wasteful expense.

Keep those wasteful expenses in mind. Turn them over in your head, again and again. Knowing that those things aren’t good uses of your money will help you cut back on things that don’t really matter. Also, while you’re looking through your bill, look for expenses you don’t recognize. They can potentially be signs of identity theft, where someone has access to your credit card information and is making charges you didn’t approve of. If you find any, contact your credit card issuer immediately to get it fixed.

Credit cards are powerful tools if used correctly.

They can build your credit, make shopping easier and more secure, and give you rewards for your normal spending. However, they make it quite easy to start accumulating debt, which can haunt you for years. Treat credit cards like a sharp knife or a chainsaw. They’re powerful tools, but if you don’t use them well, they can really hurt you.

Personal Loans: Can They Improve Your Credit Score?

Personal loans can be used to pay for pretty much anything you want. Whether you just need a quick cash infusion, have to make an unexpected purchase or need to bridge a financial gap, you may be considering taking out a personal loan. These loans are often unsecured, which means those without anything to put up for collateral may still be able to get approval.

Prospective borrowers looking to use a personal loan typically have a lot of questions. What effect is a personal loan going to have on my credit score? Will a personal loan raise my credit score? Can a personal loan hurt my credit score? As FICO is expected to adopt an updated credit score scoring system this year, the effects of a personal loan on your report are expected to increase your credit score.

Here’s how a personal loan could improve your credit score

Your credit score is a numerical representation of your creditworthiness. It’s designed to help lenders and financial institutions better understand your history of making good on your debts. Lenders and financial institutions use this snapshot to make decisions about what they will and will not let you do in the future.

A low credit score is not just the result of missed payments or negative credit history. Your score can also be low because you have no borrowing history for the credit bureaus to go off of. For people in this category, a personal loan may help to raise their score in the long run. By taking out a loan and demonstrating that you can fulfill your obligations to make on-time payments, you’ll start to build a positive credit history.

For those that have a negative borrowing history riddled with missed and late payments, personal loans can also help. By demonstrating that you’ve changed your ways and are now ready to make good on your financial obligations, you can start to erase your negative past and raise your credit score.

“Paying bills on time each and every month can have one of the biggest impacts on a credit score, and this includes personal loan payments,” says Amanda Wallace, head of insurance operations for MassMutual. “When times are tight, if there is nothing else you do, just pay on time. ”

While you could be better served to demonstrate your creditworthiness through a different borrowing mechanism, personal loans can still help to build the positive track record necessary for a higher score.

And here’s how it could hurt your credit score instead

Unfortunately, there’s a lengthy list of ways a personal loan can hurt your credit score. Some of these negative effects are only in the short term, while many could stick with you and your credit profile for several years.

Recently, the Fair Isaac Corporation (FICO) that’s responsible for creating the FICO credit score announced a rollout of changes coming to the credit scoring system in 2020. While the changes may not be adopted immediately, they’re coming, and they will affect how personal loans are viewed by credit bureaus. The company states people who take out personal loans will be flagged, as personal loans are a much riskier form of borrowing.  Even with this, making your payments on time and fulfilling your loan obligations should still have a long-term positive effect on your overall credit score under the new system.

Credit bureaus view too many inquiries into your credit as a negative. Think of it this way. If one friend asks you for money one time in a year and another friend asks you for money five times a week, which friend seems riskier to lend to? This is how credit bureaus tend to view credit inquiries like the ones required to secure a personal loan.

Taking out a personal loan also increases the amount of outstanding debt you have. It’s believed that around 30% of your credit score is based upon the amount of debt you have outstanding. The more debt you have, the lower your score.

Many of these negative factors, though, would only be short term if you make on-time payments and fulfill your credit obligations. Your credit score could take a nasty hit, though, if you start to miss payments or make late payments. As of the current system, late payments stay on your credit report for seven years. The new FICO system is looking to analyze a longer period of your credit history, which could make these missed and late payments even worse.

As personal loans are typically unsecured, they also typically carry higher interest rates and annual percentage rates (APR). In other words, the money is more expensive, which means your payments will be either larger or last for longer than with other sources of borrowing. These two factors increase the risk of missing a payment, which, in turn, increases your risk of hurting your credit score. If your credit score is already less than perfect, a bad credit loan may be worth considering.

The reason FICO is changing its scoring metrics is that personal loans are a much riskier form of borrowing. Because they rarely require collateral and often have higher interest rates, they can be a potential red flag of a riskier borrower. However, when used properly, personal loans can help in times of need when you have no other options for getting access to the cash you need. Additionally, they have the ability to help borrowers demonstrate and build a history of on-time payments.

But with these benefits do come the potential risks to your credit score. Both short term and long-term risks need to be weighed and considered before deciding to move forward with a personal loan.

How to Make Money from the Comfort of Your Home

The Simple Dollar started as a way for me to organize my own thoughts about our ongoing financial changes and perhaps as a way to make a few dollars on the side. I started writing down my thoughts, put a few ads up on the site and shared the link with some friends. After a ton of work, it slowly built into a thriving side gig and then eventually into my full-time work.

Both before and after the launch of The Simple Dollar, I tried all kinds of ways to make extra money working from home. I had a small computer consulting business. I mowed lawns. I wrote about parenting issues.

Along the way, I learned a lot of useful lessons about how to make extra money from home. Here are the key lessons I learned.

Identify things you can do quickly and with a reasonably high level of quality that others seem to be unable to do with the same mix of speed and quality.

I learned early on in my career that I had the ability to write reasonably good articles, documentation and content at a fast rate of speed. I had a process that I honed over the years that involved having a core idea, jotting down notes, turning them into a really simple outline and then just churning out reasonably good words – and I could do it fast. I don’t claim to be a great wordsmith, but I do think I can convey ideas in a personal way at a pretty high rate of speed, and that’s a skill.

My wife, on the other hand, can crochet like a machine. If we’re watching a television program, she’s usually crocheting something for someone and her hands are a blur of activity while doing it. She can churn out all kinds of things surprisingly quickly, given that she’s usually doing it while focused on something else.

I have a friend that can churn out YouTube videos on certain topics incredibly quickly. He has a number of technical skills and a system in place that lets him produce reasonably good videos at surprising speeds.

I have a friend that makes handmade soaps. I have another friend that makes glass etchings. Another friend makes deck furniture. Yet another friend tutors math students.

All of these people are drawing upon skills that they either naturally have or that they built up over time that lets them do a particular task better and/or faster than the average person, usually both, and usually significantly better and/or faster than the average person.

That’s the key to finding the right at-home work for you. Find something you can do faster and better than the average person, then figure out how you can easily sell that skill either to an employer or through some kind of marketplace.

What if you can’t figure out that skill? It’s not hopeless, but it will be a lot harder to find good work at home.

Don’t sink a whole lot of money into it.

Many “work from home” opportunities are actually just attempts by businesses to get you to buy their stuff with the idea that you’ll then sell that stuff at a markup. This usually requires you to invest money upfront into products, marketing materials and other items.

Don’t do that. In fact, avoid it like the plague. In those situations, you’re the customer, not the money earner. If a “work from home” opportunity involves you spending more than a tiny amount of money upfront to get started, then it’s not something you want to be involved with.

A good work from home opportunity is one in which you use a skill and, in some cases, equipment you already have to make money. You may have to buy a small amount of material to get started, but it should be a trivial amount and, after that, the income should make everything self-sustaining while producing income for you.

If that’s not the case, then it’s not a good way to make extra money from home. If it’s requiring a significant up-front investment from you, it’s probably not something you want to be involved with.

In fact, of the work from home side hustles that won’t work out well, most of them revolve around putting your own money into it upfront. Those fail the vast majority of the time, leaving you having tapped your own money, a lot of your own time and energy, and sometimes friendships, too.

Even if you do find something that doesn’t require a lot of money, you can still nickel and dime yourself with little expenses. A piece of software here, a web hosting plan there, a few car trips, and before you know it, you’ve devoured much of what you make. You have to keep track of your expenses if you work from home, not just for taxes, but also to determine if the time is worth it for you. Here are some good strategies for minimizing a lot of common work at home expenses, but the real key is to just keep track of them and keep a close eye on them.

The magic ingredient is time.

There are a lot of advantages to working from home, particularly if it’s a side gig when you’re making extra money. It gives you quite a bit of scheduling flexibility, eliminates commuting, and allows you to multitask household chores.

That being said, it’s still work. You have to put time into it if you want to get money out of it, and that means working in a focused manner when at home. If working at home just means an endless flood of distractions, whether it’s Netflix or chores or a hobby, then you’re not turning that time into money.

The single most important ingredient for successfully working at home, no matter what you’re doing, is focused time. Yes, you can often flex that focused time around your other scheduling needs, but if you don’t sit down and do the work, you won’t make money.

If you’re considering working from home at all, I strongly encourage you to read my earlier article on twelve strategies for maintaining focus while working at home. In a nutshell:

  • Find small rituals that signify the ‘start’ of a block of work and the ‘end’ of a block of work.
  • ‘Bank’ as much work as possible and use every droplet of focused time.
  • Set and keep a regular schedule.
  • End each working session with a period of reflection on successes and failures
  • Have a specific place in your home where you work
  • Find an ‘alternative workplace’ or two outside of your home, and maintain a ‘portable office’ bag
  • At the beginning of your work session, start loads of dishes and laundry
  • Figure out which times of the day are most conducive to your focus, and work during those periods.
  • Turn off digital distractions during those key focus periods.
  • Use ‘focusing audio’ by playing it in the background.
  • Try to get in the ‘flow’ as much as you can.
  • Block off times for professional development.

To put it simply, if the magic ingredient is time, figure out how to get as much value out of that time as you possibly can. This is especially true if you’re not doing freelance work using a skill you have. If you’re working from home on tasks that are mostly about applying focus and grit, these tips are extremely important.

Most “make extra money at home” gigs are freelance jobs.

Most people that want to make extra money at home rely on freelancing work that enable them to use the skills they’ve identified to make a quick buck.

People who are trying to sell their digital skills often go to sites like Fiverr or Freelancer.com, whereas people who make things often sell through sites like Etsy or eBay.

The goal, if you’re freelancing, is to figure out what you can offer that you can do with a great deal of efficiency, then offer it in an appropriate place. At first, you’ll want to keep prices relatively low to build up a reputation and some clients, but as success builds, the limitation often becomes the time you can give to it.

There are a few legitimate part-time jobs to make extra cash from home, but they can be demanding.

Aside from freelancing gigs, there are a lot of jobs that are more traditional in their employee-employer relationship that allow you to work from home. Most of these jobs are location independent contract positions, often in fields like medical transcription, software development, document translation, call center representative, and so forth.

You can find listings for these kinds of positions on sites like Upwork and Career Builder. They tend to aim for candidates with some experience in those fields or with obvious transferable skills (meaning you’ve done similar tasks in the past), which is important because such jobs usually involve a great deal of independent work and you’re expected to come in the door with some knowledge of what to do.

It won’t be easy, but it will be flexible.

The advantage of a side gig that’s also a “work from home” gig is that it’s both flexible and also not essential for you to make ends meet. Of course, those two things can work against you in terms of being focused and making things successful.

The keys to the castle are simple: you have to be able to really focus at home, and you have to understand what you can do well efficiently that others may value. Figure that out and you may just find some part time success from the comfort of home.