Maximizing Your Spending - The Power of the Five Back Gift Card

[Faheemkhatri4]

Spending can be a powerful tool for improving your finances. Maximizing your spending, however, requires careful planning and discipline.

Fortunately, there are many ways to extract maximum rewards from your budget. Frequent Miler recently covered one such way: purchasing gift cards with credit cards that earn 5% back at merchants like Nike, Amazon, Bed Bath & Beyond and Staples.
Managing Your Spending

A credit card that offers cash back or other rewards on all purchases can five back gift card balance be a powerful tool to help you control spending. However, it can also be a dangerous tool if you are not careful. For example, gift cards can cause people to act out of character and buy things they might not otherwise purchase — especially if the items are full-price rather than on sale.

This can be a problem because it can reduce the amount you’re able to save for needs and wants. It’s important to track your spending and compare your actual costs with the amounts you’re paying in order to identify opportunities for savings. One of the best tools for this is Budget Watch, which helps you develop a realistic picture of your expenses and makes it easy to keep track of bills and payments.

When it comes to maximizing your spending with the Power of the Five Back, it’s helpful to divide your spending into “needs” and “extras.” Prioritize your spending on essentials and try to save a portion of the remaining money for extras. If you struggle with overspending, consider using a budgeting app or making a written plan to curb your spending habits.

Some credit cards offer premium rewards on specific categories of spending, such as gas, grocery stores, online shopping, and travel. To get the most out of this type of card, it’s often a good idea to use it strategically by changing the category each quarter and then sticking with that choice for at least a month. This allows you to earn the highest rewards by focusing on certain spending patterns in different months, such as gas when you’re planning for long trips and home improvement and furnishings when you’re planning for seasonal expenditures.
Using Complementary Cards

One of the best ways to make your money go further is by using credit cards strategically to maximize rewards. Depending on your spending habits, you may benefit from having both a card for regular purchases and a credit card designed to earn bonus points in a specific category, such as dining or groceries. To determine which cards are most valuable for your spending, audit your quarterly expenses to identify your top categories and then research the available credit card rewards programs to find the ones that will offer you the highest returns on those spends. Consider the card’s interest rates as well to avoid negating your rewards with high fees.
Purchasing Gift Cards with a Credit Card

Many people buy gift cards with their credit card in order to earn rewards on a purchase they would otherwise make with cash or a debit card. While it’s completely legal to do so, there are some restrictions and best practices you should keep in mind.

For example, some credit card issuers may view buying gift cards as a cash advance (particularly with open-loop gift cards). This can cost you extra because most credit cards charge interest and fees on cash advances – and usually the fee starts accruing immediately. Moreover, some cards only offer higher reward rates on certain types of purchases, such as grocery stores or office supply stores. By purchasing gift cards at those locations on a card that offers those elevated rewards, you can boost your spending and earn more rewards in a single transaction.

Gift card purchasing can also help you hit minimum spend requirements for credit card bonuses. However, be careful not to “manufacture” spending by making hundreds of dollars worth of gift card purchases in an effort to reach a spending requirement. If a credit card issuer suspects you are doing this, they may retract your rewards or even close the account.

Some credit cards have terms that say gift card purchases don’t earn rewards, but if you use an online shopping portal, it is possible to double dip on those purchases and still earn rewards. It just requires a little extra effort, but it can be well worth it when the rewards add up.

Purchasing gift cards with a credit card can also be a smart way to earn extra rewards if you’re trying to meet a spending threshold for a bonus. As long as you don’t make large purchases of gift cards in order to earn a sign-up bonus, it should be okay with most card issuers. Just be sure to check your card’s terms and conditions for specifics.
Using a Credit Card to “Expand” a Bonus Category

Many cards offer premium rewards in specific categories, such as gas (including heating oil and marine fuel), online shopping, dining, travel, home improvement/furnishings and drugs. Using gift cards to “expand” a card’s bonus category can be a great way to earn more rewards on purchases you would have made anyway.

For example, the $0-annual-fee Citi Custom Cash Card gives you 5% cash back in your top spending category each billing cycle (up to $500 spent) from a list of eligible categories that includes grocery stores, gas stations, restaurants, office supply stores and home improvement/furnishings. Purchasing a $100 CVS gift card with your credit card, which will earn you an additional 5%, can boost your earnings on this purchase by 50%.

Keep in mind, however, that you should always pay your credit card bill in full each month. Credit card interest rates can quickly eat away at the value of any cash back earned. Moreover, some credit cards may not allow you to use gift cards as payments.

In addition, if you overspend in order to earn more rewards, the extra cash you spend could end up costing you money in the long run. For instance, if you earn 2% on groceries but spend more than the $10,000 limit for that category each year, you lose all those earnings and settle for 1% overall on everything else you buy.

For these reasons, it’s important to plan out your spending and keep an eye on the bonus categories of each card you own. It’s also important to keep a few things in mind when considering a card with a variable rewards rate, which can change from quarter to quarter. To learn more about the advantages and disadvantages of these types of cards, check out NerdWallet’s comparison of variable-rate cash back cards. We recommend reading user reviews and expert opinions as well before making any decisions about which cards to apply for.