There are two types of credit card users. Those that pay off the balances each month and those that don’t.  If you pay them off each month, they are great to have. If you are unable to pay them off each month, you should not be using them. The interest rates are far too high to have debt on them. If you have credit card debt you should read this.

For those of you that want to maximize your profit by using them, this post is for you. There are two main ways to make or save money by using credit cards. You earn rewards, whether it is points, miles, or cash back for each dollar you spend on your card. You also are able to delay payment on things you are already buying, therefore allowing more interest to accrue on that amount in a savings or money market account. Last year my wife and I were able to make a profit of over $500 employing these techniques and feel that we will be able to get our total up even higher this year. The $500 was not counting interest earned because this wasn’t easily trackable, however it was surely a decent amount considering ING’s rate was around 4.5% to start 2008.

There are three cards that I have looked into that offer the best rewards. The Schwab Bank Invest First card offers 2% cash back on every purchase. Amex Blue offers 5% on certain purchases after you spend a certain dollar amount annually. Chase Freedom was a great card but now only pays 1% to new customers.

If you are looking for a new card, or have one of these cards, make sure that you understand the benefits of each. These cards all have greatly varying reward programs and no one card is better for everyone.

 If you spend a large amount on your card, and most of it is at grocery stores, gas stations and drug stores, then the AMEX would probably be your choice. The terms on new Chase customers have changed, but it still has an unparalleled amount of purchase protection, including warranties and it will reimburse you if you are unable to return an item that you bought on the card. The Schwab card pays 2% for each purchase anywhere, so if you don’t really spend that much on grocery stores, this card is a great option. You might also think about using both the Schwab and the Amex to really max out the rewards. americanexpress.com – schwab.com

At this point, interest rates for online savings accounts are under 2%. This is not a great rate considering a few were approaching 6% a year or two ago. Even with a 1.5% return, if you are able to keep an extra $2000 in your savings account, you’d earn enough to pay for a late fee or two if something should happen. This is not much money, but it is more about the principle. If it takes no work to manage, then why not earn a few bucks.

Let me know if there are better cards out there or if any of the terms change.

The worst thing about credit card debt is that it is so easy to get into and so hard to escape from. Credit card debt comes from a combination of two things; overspending on big purchases and overspending on small purchases.

When I had credit card debt, the one thing that really helped me to get on my way to eliminating it was to do the toughest thing. Take the time to tally up the debts. The numbers were embarrassing. I had 2 or 3 cards with varying interest rates. After putting it all together on paper, I was able to get a clear picture of what I needed to do to get rid of it.

I put the amounts I owed in one column and the interest rates in another. It was clear to me which debt I had to concentrate on eliminating. I moved forward paying the minimum on all of the cards except for the one charging me the highest rate. After a few months, when one of the other cards was almost paid off, I switched to that card so I had fewer bills, and then would switch back to the one with the highest rate again.

Eliminating a bill gave me a great feeling. I could see the light at the end of the tunnel. By this time, I had cut my debt in half. In order to do all of this, I had to both curb and track spending. I had to give up some things that I loved. I gave up going out to the movie theater, buying CDs and the latest gadgets. I cut down on eating out and going to the bars. I spent a lot of time finding ways to save a little money.

If you are truly set on eliminating credit card debt, you need to track spending. Know where every penny goes and have it down on paper. Once it’s there, you need to see where the money all goes and look for some patterns. This will help you locate areas to make cuts. Two posts come to mind. This one on spending less than you earn and this one on budgeting.

I know things come up and you need to use your credit card, but having a credit card and making it work to your advantage are what you should strive for. I’ll post on this soon.