Harvesting Credit Card Rewards

It’s nearly that time of the year again — time to harvest the cash back rewards I’ve “earned” on my various credit cards.

From a strictly rational maximizing point of view, the best method would be to claim my cash rewards multiple times throughout the year and put that money to work immediately.

But as with every money decision we make: it’s personal.

In this case the rational-maximizer part of me is easily shouted down by the irrational big-payday emotional- and psychological-gratification-seeking part of me.

With a few exceptions, I like to let my cash reward balances grow all year long and then claim them all at the very end of December or in early January. Since I put every purchase possible on a credit card, my annual cash back harvest is not insignificant.

This year my total cash back rewards should top $1,200. Balanced against my annual credit cards fees ($0) and the interest I pay on credit card balances over the course of the year ($0), that’s a net gain of about $1,200 [yeah, you see what I did there?].

I snuck in that last point but let’s not gloss over how important it is: if you’re using a credit card to earn rewards (points or cash) but you’re carrying a balance and, therefore, paying compounded interest even just a few times each year — do some math and make sure your credit card habits are not resulting in a net loss. If you are carrying a balance and paying interest but still making new charges to your card to earn rewards, it’s likely that the math is simply too significant to make a case for acceptable irrational and emotionally-gratifying rewards-seeking behavior. Each situation is different but I’d likely recommend that you cease all credit card use until your card is paid in full with no interest charges for a few months before you start charging to the card again.

The key points here are:

• strategic use of credit cards can result in cash back rewards that, over time, add up to real money
• even money coaches engage in a little harmless irrational money behavior now and again
• if your fees and interest exceeds the rewards you earn, stop and rethink your strategy

Happy Harvesting to all you savvy credit card users out there — whether you harvest your rewards throughout the year or you wait, as I do, and do it once a year. And if you’re not quite to the point of being able to earn more in rewards than you’re paying out in interest and fees, keep on keeping on. You can do it.