How I’m Responsibly Using Credit Cards to Boost My Income

Credit cards are the chainsaws of personal finance. When used correctly and responsibly, they can be powerful tools that can help you save money, work toward a good credit score, and earn some additional ‘income’ through rewards. When used irresponsibly or with reckless abandon, they can ruin lives.

The key is only using credit cards responsibly.

It’s essential to build rigid self-discipline to retain full control over them–respecting the fact that should at any moment your discipline waiver, a credit card will eagerly devour you and drain your finances.

If you have a bad history with consumer credit or lack the discipline to treat credit card purchases like you’re paying with cash, stay far away.

Here’s how I’m using my credit cards as part of my toolbox to boost my income and build financial independence:

The #1 rule of my credit card

The number one rule I follow is to ALWAYS pay off my full balance each and every month.

Despite having a credit card since college, I’ve never failed to pay off my credit cards in full each and every month.

No exceptions. Zero. Zilch.

I have paid $0.00 in credit card interest in my lifetime.

I treat each transaction I make on my credit card as if I’m paying cash. If I don’t have the money to cover the purchase in its entirety in my checking account (which I keep a low cash balance), I don’t put the charge on my credit card, it’s that simple.

Credit card balance — checking account balance = what I can charge on my card.

Conveniently, I try to keep my checking account balance in line with my expected budget for the month.

Of course, I still track budgets across various categories with Mint and make sure my family is staying on track with our expenses and keeping them under control. Planned budget categories won’t work out 100% of the time every single month.

If I have recurring charges or subscriptions on my credit card, they’re tracked in Mint. The app will send me alerts when my bills or recurring charges are approaching so I can think about and internalize the charge and make sure it’s still a subscription that I want to be paying for.

Reliably and consistently boosting my credit score

Credit cards do provide one of the best ways to systematically build a great credit score.

By maintaining great credit habits, I’ve been able to reliably boost my credit score which is essential to getting the best possible rates for ‘good debt’ like a mortgage. By responsibly maintaining my credit, I can save tens of thousands of dollars over the life of my mortgage.

• I pay my full credit card bill on time every time. I’ve never paid a penny in credit card interest.
• I keep my card’s revolving utilization low (usually at 7% and less) and well below my overall credit line.
• If I have a higher balance for the month than usual, I’ll typically make an extra payment. This is usually for things like auto insurance premiums, unexpected maintenance on our car, or booking travel expenses for a planned vacation.
• I don’t inquire for new lines of credit often.
• I monitor my credit report and any new inquiries.
• I monitor my credit card transactions to ensure there are no unexpected or incorrect charges.

Earning additional rewards and income

My main credit card is the Costco Anywhere card, and it’s been fantastic for my needs. You can read Nerdwallet’s 4.6/5 star review of the card here.

Costco Anywhere card benefits:

• 4% cashback on gas (up to $7,000 in purchases per year and 1% after).
• 3% on restaurants and travel purchases.
• 2% on all Costco purchases.
• 1% on everything else.

By never paying an annual fee or credit card interest, I’m earning ‘free’ money in rewards. In general, cash back from credit card rewards is treated as a rebate in the eyes of the IRS. It’s tax-free ‘income’. But at the end of the day, it’s still extra money in my pocket. Because I’m not paying taxes on these cashback rebates, it acts at a 1.24x multiplier on the total rewards due to my tax bracket.

A major rule of thumb to highlight: rewards from Credit cards will NEVER replace the benefits of simply saving more money by not spending it in the first place.

I’m a big fan of Costco. Costco helps me cut down on expenses and buy certain life necessities in bulk. These savings can add up big over time. By responsibly using my Costco credit card for everyday spending, I can also more than cover my $120 yearly Costco membership fee.

Another perk, since my wife and I are Executive Costco members is that we get an additional 2% back from all our Costco purchases (up to $1,000 a year). That’s like getting a permanent 4% off coupon for every purchase we make at Costco and on their online store using my card.

One of the drawbacks of the card is that the cashback can only be redeemed once per year in the form of a check. But by responsibly using my credit card, I can create over $500 of extra yearly ‘income’ with many benefits added to the top by maintaining a high credit score and always working to improve it.

$500 of tax-free ‘income’ is equivalent to $657.90 of extra income in a 24% tax bracket.

I invest all of my cashback rewards in my investment accounts as part of my financial independence investment strategy.

Does $500 a year extra really make a difference?

Going through a very simple future value exercise, if I start with a zero dollar balance and earn $500 a year in extra credit card rewards (this assumes my credit card spending/rewards will never increase with inflation), investing it with an inflation-adjusted 7% return over 32 years, my investment JUST from my credit card rewards will grow to $58,966 by the time I’m 59 and 1/2 years old and ready for ‘official’ retirement.

$58,966 at a 4% yield will generate $2,358.64 of yearly income for me or an extra $196.55 per month, all for zero extra effort and a great deal of self-discipline and respect for this financial ‘chainsaw’.

Creative ways I earn even more credit card rewards

When going out with friends when we have a large party size, I offer to pay the check for the table and have them Venmo me for their share of the bill (after doing the calculations myself for what everyone owes). I can scoop up extra credit card rewards from the purchase while saving everyone some hassle for paying, all for the slight inconvenience of not having the money from dinner in my checking account for 2–3 business days.

If our dining tab is $350, I can scoop up $10.50 in rewards at 3% for doing some 1-minute napkin math for how the bill should be split up so everyone pays their fair share. Not too bad.

I pay all eligible 1099 business expenses and tax-deductible write-offs on my own personal credit card, earning extra rewards while reducing my taxable income from my side hustles. When I set up my LLC in Texas later this year, I’ll find a business credit card with good rewards to make my accounting responsibilities a little easier.

I set my auto-pay for utility accounts on my credit card whenever possible. Assuming there are no extra fees for paying with credit card instead of bank transfer, the math works out. For example, I save an extra 5% on my monthly phone bill for my family just by enabling autopay. With my 1% cashback on the monthly expense from the credit card, that’s 6% off my monthly phone expense with T-Mobile.

I try to pay anything that can be expensed at work with my personal credit card. I’ll get the extra money back as a tax-free reimbursement from my employer and get the credit card rewards for the purchase. This can add up big for flights, certification and study material purchases, etc.

Earn a little extra over the top: I use Honey when making online purchases. Honey will automatically give me some extra cashback if eligible. I get the rewards from my credit card, plus an additional kicker of cashback rewards from Honey that I can redeem directly for gift cards or Paypal balance which equates to more cash in the bank. Honey is a pretty cool deal-finding and cashback tool that’s useful for scouting out better deals across the web.

Join me on my journey to financial independence

I hope you’ll join me on my journey to Financial Independence. Check out my blog at drewcordell.com

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