The No. 1 Rule to Follow to Save Money With Rewards Credit Cards

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Rewards credit cards are popular, but not everyone uses them correctly. Discover the most important rule you must follow when using this type of card. [[{“value”:”

Rewards cards are a great way to save money, just by paying with a credit card. If you use a cash back card, you’ll earn a percentage back on every purchase. Or you can use a travel card and earn either points or miles redeemable for travel purchases.

It’s a valuable benefit, which is why these cards are so popular. More than half (56%) of consumers have cash back cards, and 49% have a rewards card, according to credit card research by The Motley Fool Ascent.

But you only save money with rewards cards when you use them correctly, and many people don’t. If you have any rewards cards, or you’re planning to get one, there’s one key rule you must follow.

The No. 1 rewards rule: Always pay your credit card in full

When you pay your credit card bill every month, you have options. There’s a minimum amount, and you need to pay at least that much. There’s also the statement balance, which is what you owe as of the close of the last billing cycle. And there’s the current balance, up to date for the day you view it.

Always pay your credit card’s full statement balance (or the current balance). If you don’t pay the statement balance, then your card issuer can start charging you interest. But if you pay the statement balance every month, you can use your card and earn rewards interest-free.

That’s important, because interest charges will likely cost you more than any rewards you earn. The average rate on interest-bearing credit cards is 22.77%, according to Federal Reserve data. On a $5,000 balance, that would cost $1,139 in yearly interest — far more than most people earn in rewards.

How to ensure you can pay in full

Paying your credit card in full is common advice, but it’s easier said than done. Credit cards make it convenient to borrow money. Rewards cards, in particular, can incentivize you to spend more. It’s tempting to overspend when you know you’ll be earning cash back or points in the process.

When people end up in credit card debt, it’s normally for one of two reasons:

They get into the habit of spending more than they can afford.They need to use their credit card to pay for an emergency.

Here’s what you can do to solve each of these issues.

Overspending: Treat your credit card like a debit card

The danger with credit cards is that they allow you to spend money you don’t have. To avoid overspending, don’t make purchases on your credit card that you couldn’t afford with the money in your bank account. If you follow this approach, you’ll always be able to pay your credit card bill in full.

Emergency expenses: Build an emergency fund

Everyone has to deal with unexpected bills from time to time. If you haven’t already, save money every month to build an emergency fund. The most common rule of thumb is to save enough for three to six months of living expenses.

Coming out ahead with rewards credit cards

It’s possible to get lots of value from rewards credit cards. But that all depends on whether you pay your bill in full and stay out of credit card debt. If you can do that, you’ll get the benefit of earning rewards without the cost of expensive interest charges.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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