I know, you're constantly bombarded with easy-money and get rich quick schemes on television and the internet, so you're probably reading this with a raised eyebrow. But seriously, for several years now, I've effortlessly collected anywhere from $800-$1200 annually for simply altering my habits a bit and spending 15-30 minutes of up-front work ONCE. For years now, I've been taking advantage of cash back reward credit cards. Since I always pay my monthly payment in full and only use 2 cards for this practice, my credit score's great and I've been able to take the credit card companies for around $1,000 per year. What I did was simple. I just searched around for a couple credit card reward programs offering cash back amounts of 5% on gas, groceries and pharmacy products (this is the most common combination), spent a few minutes completing an application and off I went. Once I had the cards in hand, I made sure my wife and I did ALL the grocery shopping with eligible cards, ALL the gas with eligible cards, ALL large purchases with the cards; then simply paid the bill off at the end of each month.

A few key rules:

• First, and most importantly, if you're already carrying credit card debt or find yourself lacking fiscal discipline, stop reading this post, please. Paying 20%+ interest to capture 5% credit card rewards is counterproductive and frankly, dangerous. There are myriad paths to debt elimination and this is not one of them. You need to focus on changing your spending/credit card habits and the basics before signing up for new credit cards.
• If you're already engaged in a credit card rewards program and think there's nothing to learn here, you may be able to optimize the cards you rely on or change your spending patterns and capture additional credit card rewards. For instance, a lot of people I talk to have a card that claims 5% back, but that only kicks in after you've spent several thousand dollars. Other people have a different card that has a 1% credit card reward. Why settle for portions of the full benefit? Within the same credit card family, the terms and conditions vary, so just find the right one for you.

What's the catch?

Barring any existing financial troubles that would prevent you from enjoying this additional stream of income tax-free, there is one common clause with these cards, which is that you can only redeem $300 per year in credit card rewards. That's why I have 2 cards. Between my wife and I, that's $1,200 in earning power each year. I don't necessarily micromanage the rewards on the cards; I just generally switch over mid year to the next card so I don't lose any rewards in the middle of the cycle and then switch back again in January.

In addition to that knowledge, make sure you don't sign up for a credit card reward program that only gives you frequent flyer miles or gift cards and the like when you can get a card that gives you cash. If you really like the shop at Home Depot and don't mind that card, why not just get the cash and spend it at Home Depot or anywhere else and retain that flexibility instead of being locked into getting all your rewards within a small set of vendors?

As a final catch, you may be adding up what your typical credit card bill is and saying, "There's no way I spend enough to even make this worth my while. If you're dropping enough money get back a thousand bucks a year, you've gotta check your spending habits, Dan!". Well, imagine if you didn't use cash for anything. Don't get me wrong, I always have cash on me; I don't want to be that guy that can never pay my share when out to dinner with friends, etc. But I charge essentially everything I can. With my wife shopping for a family of 4, getting organic for the kids, gas prices these days, etc. it adds up real quick!

What do I do with the credit card reward proceeds when I receive the checks every few months?

I've been putting the exact proceeds into my sons' bank accounts each time. In parallel, I have Educational Savings Accounts set up for their college years which automatically withdraw money monthly from the accounts so I can dollar cost average into low-expense Vanguard index funds in their ESA accounts. Of course, I contribute extra money when I can, as well as gifts from friends/relatives for big occasions, but amazingly, a sizable portion of our children's college funds will have been paid with credit card reward cash.

For those who take advantage of this program or are considering doing so, what do you do with your proceeds?




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