I use my credit card like a debit card and earned $600 in rewards in 2024. I think this is ‘free money’ but my friends tell me it’s not. So what are the drawbacks?

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There's a chance you could get free money by using your credit card - but only if you use it in the same manner as you would a debit card.

For instance, you sign up for a cashback credit card that refunds 5% of what you spend at grocery stores and end up spending $12,000 at grocery stores in a single year. As long as you pay back your balance in full every month, you can consider your credit card to be functioning similarly to a debit card – using only the funds you have in your checking account.

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In this case, your hard work could pay off with $600 in rewards after a year, just by continuing your weekly grocery shopping trip. However, swiping your credit card to earn rewards isn't as great as it's often made out to be.

Are credit card rewards truly free monetary benefits?

To keep your card active, you need to pay a fee. In exchange, you can earn rewards, like cash back on purchases or points that can be used to book travel or buy merchandise. Some cards may also come with extras like travel insurance and purchase protection.

and start to charge interest on any outstanding balance. These charges can quickly exceed any rewards you've gained.

Credit card networks such as Visa and Mastercard use rewards to encourage consumers to sign up for and use credit cards, resulting in higher fees for retailers.

These increased fees are often transferred to customers through higher prices on goods and services. Although you can't control this, understanding how credit card rewards are funded can help you make informed decisions about your credit card use. If someone is going to benefit from the rewards, why not make it you?

in 2025

Remember to always use your credit card responsibly and pay your balance in full to avoid interest charges.

There's nothing wrong with using credit cards to collect rewards, but having a plan in place is crucial to getting the most advantages out of it.

• Take a close look at your monthly budget and establish spending limits for various categories. This way, you can avoid overspending and pay your entire balance every month without exceptions. By keeping an eye on your spending on a regular basis, you'll be more likely to stay on track with your financial goals.
• Late fees and the interest that comes with them can cut into your rewards, which is why it's crucial to make timely payments. Set up automatic payments so you never miss a due date. Just make sure your checking account has enough money in it when the payment is processed.
• Choose a rewards credit card that aligns with your spending habits. For instance, if you're interested in earning travel rewards and often buy gas, a travel rewards card with enhanced points for gas station purchases would be a good fit.
• Make sure the rewards you earn from your card are more than enough to cover the annual fee. For example, if your card costs $95 each year, but you earn $600 in cashback, it's still a good choice.

Using credit cards effectively can help you unlock valuable benefits, but it needs careful discipline and planning. By using your card in a manner similar to a debit card and being aware of the fees and interest, you can earn enough rewards by the end of the year to offset the expenses.

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Please note that the content provided in this article is for informational purposes only and should not be taken as advice. It is offered without any implied or explicit guarantee.