How to Make Money with Credit Cards (And How I made $5127)

Did you know that you can utilize credit cards to earn, what is essentially, free money? I’m going to show you how to make money with credit card rewards, including two strategies to earn rewards, and the strategy I used to earn $5127 in credit card rewards in less than 18 months.

How Credit Card Companies Work:

A credit card company is like any other business. They want to provide a service that provides value to the customer, while of course delivering profits to the company.

There are four ways credit card companies profit from you:

1. Transaction Fees
2. Late Fees
3. Interest Fees
4. Annual Fees

Transaction Fees

The cards make money every time you swipe your card at your beloved retailer, I’ll use Target as an example. 

Here is the transaction fee schedule for some major credit card companies according to valuepenguin.com:

You’re usually paying for these fees, regardless of whether you’re paying with cash or card.

At Target you might be paying $1.00 for a candy bar. When the cashier rings you up, $0.03 might be going to the credit card company, while Target only makes $0.97 off the sale.

While Target could just charge everybody $0.97, it decides to pass the cost to you, the customer, and charge everybody $1.00.

Target does not provide cash discounts, so you’ll still be paying $1.00 including the credit card transaction fee, even if you’re paying with cash!

Very few retailers will actually offer a discount for paying cash. The most common ones are gas stations.

Have you noticed that you can pay with credit card, but if you elect to pay in cash you get something like a 3% discount? That discount is just so that the gas station doesn’t need to collect transaction fees from you if you use your credit card.

Late Fees

Your credit card company will send you a bill at least 21 days before its due. If you fail to pay the minimum by the due date, the credit card company may charge you a late fee. This fee can run from $20 to $40, but on average runs about $36.

Interest Fees

If you continue to hold a balance after the due date, you’ll have to pay interest on that balance until it is paid in full.

According to WalletHub, The average credit card interest rate is 18.61% for new offers and 15.09% for existing accounts.

These high interest rates makes it extremely expensive to borrow money from a credit card, considering a 30-year fixed mortgage loan currently charges about a 3% interest rate!

That’s why I pay my credit card balance in full every time and on time!

Annual Fees

Really? There’s a fourth way credit card companies try to screw you? Yup!

Credit Card companies may present you enticing offers for opening a credit card. Some of the current offers look like this:

As you can see, some companies try to entice you with several thousand points or miles, which can be later redeemed for rewards like gift cards or travel expenses like hotel stays, airfare, etc. Some companies will straight up give you a cash bonus, like the Blue Cash Preferred offer.

But notice how they all charge an annual fee.

Paying a $95 annual fee and receiving a bonus value of $700, you could pay the fee 7 times and still come out with more value than you paid in fees.

Paying the $250 annual fee and receiving a bonus value of $700, you could only pay the fee 2 times and still come out ahead.

So how are the credit card companies making money if they are giving away so much in bonuses?

Well, the more you use the card, the more they’re likely to make in Transaction Fees, Late Fees, Interest payments.

Furthermore, they’re relying on YOU to forget about the annual fee, and enjoy the card so much that you’ll keep paying the annual fee year after year after year. 

If you paid the $250 AMEX annual fee three times ($750), the company has already received more in fees from you than it has given to you in bonus value. Every year you pay them the annual fee after that, results in profits for them!

How to make Money with Credit Cards

I promised that I would tell you how to make free money from credit cards, and here’s how:

Earn Rewards from Spending

You can earn rewards from credit cards with no annual fees, as well as cards with annual fees.

If you use a credit card fee with no annual fees, then all of your rewards are pure profit.

For example, I use a Citibank rewards card that charges no annual fees, yet pays be 2% cashback on every purchase. For every $100 I spend, I get back $2 in “free” money. Score!

But do realize that the retailer was probably charging me an extra 3% on my purchase to pay for those transaction fees. So really, this 2% is something I paid for already so it is rightfully mine!

There may be times when owning a card that requires an annual fee provides greater benefit than a card with no annual fees.

For example, you might spend $10000 in a year, and with the 2% cash back card, your profit is $200.

On the other hand, there might be a credit card that requires a $95 annual fee, but that pays you $350 in rewards for the same amount of spending, for a net profit of $255.

I plan to write another blog post on the breakeven point of different cards. Stay tuned!

Difficulty:

It is exceedingly easy to sign up and earn “free” money from your regular spending. Just remember to always pay your bill in full and on time!

Make Money by Credit Card Churning

THIS is where the cash cow is.

Remember how some cards provide a bonus value that far exceeds the annual fee? If only you could open a card, spend just enough to receive the bonus value, then cash out the bonus value and close the credit card before having to pay the next annual fee. 

The process of doing this is known as credit card churning.

Credit Card Companies take a gamble on you by loaning you credit. You could be one of two things:

1. A sucker: One who pays more in fees than receives in bonus value; or
2. A churner: One who receives more in bonus value than pays in fees

Credit card companies are relying on most people to be suckers. 

But YOU have a choice. Do you want to be a sucker, or a churner?

Legality of Credit Card Churning:

Seems shady. Is churning legal?

Churning is absolutely legal. There is even a subreddit on churning with over 200,000 members, so it’s no secret!

In aggregate, credit card companies are making more money by having more signups. Credit card companies have a churn rate of about 20%. That means for every 10 people that sign up for a card, on average they will make money from 8 suckers, and lose a money from 2 churners. 

The card companies don’t know WHO they’ll be making money off of, but they know that statistically they WILL make money.

Credit Card Churning Ethics:

“But churning just seems wrong…”

Is it not wrong for the credit card companies to charge 4 types of fees: Transaction Fees, Late Fees, Interest payments, Annual Fees?

Is it not wrong for credit card companies to make money from, on average, 80% of credit card signups who they deemed suckers?

Credit Card Churning Challenges:

Spending

Churning certainly has its challenges. It requires you to spend a lot money in a short time period to receive the bonus. For example, to get the AMEX Gold card bonus, you’d have to spend $4000 in the first three months of opening the card. Very few people spend that much money in such a short time span on a regular basis, so it only makes sense if you know you’re going to make a big purchase.

Organization

Another challenge is staying organized. You have to diligently track your spending to make sure you hit your spending target within the specified time frame. Even if you come up $1 short on your spending, you won’t receive the bonus!

Credit Score

Lastly, opening cards may impact your credit score. Every time you open a new card, the credit agency marks that as a “New Inquiry” on your credit history. If you have too many inquiries in a short time frame, it can negatively impact your credit score.

Making Money with Credit Cards: My personal experience

I had a friend who kept pushing me to sign up for rewards credit cards to reap the benefits. At that time I thought, eh it’s too much work… just for a few measily bucks. Besides, the annual fees would eat up any bonus that I received. 

But years later, as I went for degree, I had to pay for tuition.

I paid my first two tuition payments using my regular 2% Citibank cash back card. My rewards were nothing but a small pittance.

Then I realized…wait a minute… I could probably be making a lot of money from credit card bonuses. 

What’s crazy is that my school is just one of the few schools that don’t charge credit card fees for paying tuition!

I paid my next three tuition payments using the churning method, opening 7 cards in the process. I was able to meet the spending limits on all of them because, yes, tuition is expensive!

Here’s how much I made in estimated rewards after subtracting the fees that I paid:

Do note that most of the bonus value is in travel credits. So I can use these credits to book airfare, hotels, car rentals, etc. 

Are these travel credits as good as cash? Pretty much, since instead of say paying $100 for a hotel room, I can just use $100 worth of travel credits.

I used to travel quite a bit. Until COVID changed all of that…

Challenges to making money with credit cards

Yes, it did become tricky to track all of my spending, and to open the cards at the right time to make sure my spending fit in the spending window (typically 3 months). 

It required me to be extremely organized, diligent with my payments, and timely with monitoring my bills to pay them off in full on time every time.

Worth it?

But was my extra work worth the $5k? Absolutely.

Instead of using my hard earned cash on my next vacation, I can just tap into my travel credit balance.

Thankfully, opening all of these cards only caused a minor decrease to my credit score, which right now is back to its pre-churn level.

Would I do it again? Only if I had a huge purchase coming up like an expensive trip, a car, or god forbid, more tuition.

Do note though, that this strategy is NOT for everybody. It requires focus and extreme attention to detail. But if done correctly, it may be worthwhile for you.

Making Money with Credit Cards: Conclusion

Credit Card Companies are always trying to profit off of you, by charging Transaction Fees, Late Fees, Interest payments, and Annual Fees.

Now that you know how to make money with credit cards, you can look into utilizing rewards cards or cash back cards or churning new cards for their sign-up bonuses. 

Saving money will invariably bring you closer to Financial Freedom.

Now let me ask you!

Do you have any experience churning? Were you successful? 

Which rewards cards are your favorite?