How to maximize your credit card rewards

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Updated, April 28, 2020: Credit cards come with all sorts of rewards.

When you’re evaluating credit cards for their potential rewards, you'll want to pay particular attention to drawbacks like annual fees and limitations on how you can spend your points. Learning how to read a credit card agreement will go a long way.

Maximizing your rewards credit cards can require big spending, which might seem counterintuitive, but the perks can save you money on activities like dining out and travel. Here's how to get the most out of your rewards.

Take advantage of sign-up bonuses

Most rewards credit cards come with a sign-up bonus. For travel rewards cards, it usually requires spending a certain amount of money in a short period.

It may sound like a no-brainer, but you'll want to make sure and go through your budget before you sign up for your rewards credit card. Figure out if you can safely spend the amount that you need to in the given period to receive the bonus points.The best way to handle this is to use your credit card like a debit card. Put every purchase you can each month on your new card and then pay it off fully at the end of the month. Not only will you rack up points, but by paying the credit card off in full each month, you avoid interest rate charges and fees.

Know when to sign up

One way to ensure you spend enough to receive a sign-up bonus is to apply for a card just before a high spending period, like the holiday spending period. You might also be able to rack up points if you're planning a wedding or furnishing an apartment.

When you're planning a big trip, you'll want to make sure that you sign up for your rewards card at least five to six months out from your trip. Signing up for the card in advance will give you enough time to make purchases to receive your bonus points plus any other special offers before you need to book your trip.

Keep an eye out for limited-time promotions. Credit cards will sometimes offer more generous sign-up bonuses throughout the year, so pay attention to your inbox.

Spending strategies

Not all rewards cards are created equal. Some offer higher bonuses on categories like restaurants, hotel stays or supermarket purchases. Make sure you select a card with rewards that align with your spending habits.

Some cards change their rewards throughout the year. The Discover it Cash Back card, for example, offers 5% cash back in a different category each quarter. To maximize those rewards, you'll have to adjust your spending every few months.

Using a combo strategy with your rewards credit cards can lead to even richer rewards benefits. For example, if you have one card that earns points on restaurants and another that earns points at supermarkets, you can score rewards wherever you eat your meals.

Be wary of expenses

Many rewards cards come with annual fees. Some charge hundreds of dollars for the right to earn rewards. Before applying, be sure to compare your expected rewards against the annual fees to make sure the benefits are worthwhile.

Be sure to pay your balance off in full each month if you can. Credit card balances lead to interest payments and fees and can lower your credit score, which could make future borrowing more expensive.

Maximizing your credit card rewards is the name of the game when it comes to scoring loads of points and cash back. If you’re already going to spend the money on purchases each month, why not get a bonus in return? While you're busy buying groceries and gas each month, you could be one step closer towards going on that amazing vacation that you've been dreaming about. That fabulous vacation could cost you very little after you utilize your points, or even nothing if you play your cards right.

Disclosure: The terms and conditions for credit cards, including interest rates and fees, are subject to change. Be sure to check an issuer's website for the most up-to-date fine print.

Image: Alberto Cerriteño