Cash In On Credit Card Sign-Up Bonuses
If you could easily make several hundred extra dollars a year with minimal effort, would you do it? Most people would say yes, but when you tell them that the way to do it is by opening new credit card accounts, they get nervous. They're afraid that the new accounts will damage their credit scores or that there's some kind of catch. (Paying these rates can impact your disposable income and your investment returns. Check out Understanding Credit Card Interest.)

The truth is that it's easy to make money from credit card sign-up bonuses, and there isn't a catch as long as you pay your bill in full and on time and look out for annual fees. Here are some tips for understanding and making the most of these offers.

TUTORIAL: What To Know About Credit Cards


Many credit cards offer incentives to entice consumer and businesses to open a new account. Common incentives include enough frequent flyer miles to get a free plane ticket, points that can be redeemed for high-value gift cards and generous statement credits that allow you to get the loot of your choice for free.

If you already have a credit card that you manage responsibly, you shouldn't have any trouble taking advantage of credit card sign-up bonuses. If you don't have a credit card but you've been thinking about getting one, why not apply for one with a top-notch perk?

If you're interested, here's what you need to know.

Choose the Right Offers
There are a wide range of credit card sign-up bonuses out there, and not every bonus is worth your trouble. Only you can decide what kind of bonus makes the effort of opening, using and canceling a new account worthwhile. Is a $20 bonus worth it? Or do you require a higher threshold, like $100? Do frequent flyer miles entice you, or would you rather earn points that you can redeem for gift cards?

Some cards require you to spend a certain amount of money within a certain time frame to get the bonus. For example, the Chase Sapphire Preferred Card currently awards 50,000 bonus points worth $625 toward airfare or hotels, but it requires you to spend $3,000 within three months of opening your account.

Don't Overspend to Get the Bonus
For cards that do require you to spend a certain amount within a certain time frame to qualify for the bonus, it can be tempting to spend more than you usually would to meet the threshold. You can always make up the difference by purchasing gift cards for stores that you shop at regularly. However, many people tend to overspend when using gift cards, so unless you're good at using your gift cards like they're "real" money, you could still end up overspending. To get the most bang for your bonus buck, it's usually best to stick to deals that fit in with your normal spending patterns. (Avoid these pitfalls to keep your credit score healthy and your debt under control. See 6 Major Credit Card Mistakes.)

Choose Offers That You Can Cash in on Quickly
The Miles by Discover card offers cardholders 12,000 bonus miles in their first 12 months as cardholder - but the miles are doled out in 1,000-mile increments for each month you make a purchase. Ten thousand miles will get you a $100 travel credit, so the reward itself isn't too shabby, and it's easy to earn if you plan to use this card regularly.

But cards that require you to stick around to earn the new cardholder bonus aren't the most efficient way to earn rewards. Plus, if you sign up for a card like this just to earn the bonus and not because you really want the card, you will either have to make an ongoing, special effort to earn the full reward or risk forgetting about it and missing out on your bonus.

Pay Your Balance in Full and On Time
If you can't manage credit responsibly, don't try to play the new account bonus game. The late fees and interest payments will eat you alive and the rewards will hardly make a dent in the bill you rack up.

Don't Be Afraid of the Fine Print
Many people are intimidated by signing up for new credit cards because they're afraid of what might be buried in the fine print, but the terms are usually laid out quite clearly. When you're looking at a deal online, just click on the link that says "Terms," "Terms and Conditions," "Pricing and Terms" or something similar to learn if the card has an annual fee. The APR and other details shouldn't affect you if you're planning to pay your balance in full and on time.

Understand and Follow the Terms of the Offer
The main page advertising the sign-up bonus offer - not the terms and conditions document - is usually where you'll find the terms of the bonus. Read this page carefully to make sure you understand the deal.

If you have to spend $1,000 within three months to earn your bonus, make sure you know when the three month period expires. It probably starts the day you apply for the card - not the day the card is mailed, the day you receive the card, the day you activate the card or the day you make your first purchase.

Another common scenario is that the card will have an annual fee that's waived for the first year, so you'll want to make sure to consider canceling the card before you incur the fee. You shouldn't be paying an annual fee, however, unless you're getting a deal that significantly outweighs the fee. If you're worried about having to make an uncomfortable phone call to close your account, don't be - you can always mail a letter to customer service, and some companies will let you cancel by email.

Redeem Your Rewards Promptly
Sometimes rewards programs are cut back - it might take 12,000 points to get a $100 gift card where it used to take only 10,000 points, or it might take 35,000 miles to get a plane ticket instead of 25,000. If you wait too long to redeem your rewards, you might not get the bonus you anticipated. Worse yet, you might forget to redeem it altogether!

It's Not a Scam
Does the thought of opening a card, getting the bonus and then closing the card make you feel guilty? Don't let it. Credit card companies are businesses, and they're free to set whatever terms they want for their bonus offers. If they want to give you $100 after you make your first 99 cent purchase on iTunes with no further obligation, that's their choice, and you're free to take advantage of it. If they want to define a "new cardholder" as anyone who doesn't currently hold that credit card and allow you to repeatedly apply for the same card, get the bonus and then close the card, that's their choice, too. Card companies can always make the terms of the deal more complicated if they want to make sure you'll stick around longer - and they often do.

The Bottom Line
Of course, if you truly find the idea distasteful and don't want to participate, that's your choice. However, if you can manage credit responsibly, credit card account opening bonuses are a great way to make some extra scratch. (As criminals are becoming more savvy, your money is becoming more vulnerable. Refer to Debit Card Fraud: Is Your Money At Risk?)

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