One of the best things about opening a new credit card is the potential to earn a valuable welcome bonus. Just spend a minimum amount with the card within a certain timeframe, and a gift – which can be in the form of cash, points, or miles – is all yours. Many accounts come with welcome bonuses, so if you’re in the market for a new card, keep an eye out for these offers. By managing the account well, you can turn a nice profit.
Ready for a credit card with a sign up bonus? Here is how to pick the right card, and tips for preventing debt as you rack up rewards.
Earning a credit card welcome bonus
Each credit card issuer and card features a different bonus offer and requirements. The rewards and terms are outlined on the company’s website. All are different. As an example, for one card you may earn $200 in cash after spending at least $500 on qualifying purchases within three months of opening the account. On another card you might need to charge $2,000 within six months to earn 80,000 miles, which have a redemption value of around $950.
The best credit card sign up bonus depends on your lifestyle, and how you prefer to get your rewards. Before you start applying, you’ll need to determine which card type you want – not just for your current needs but after you earn the bonus.
For rewards, your options are:
- Cash back. If you want to earn a percentage of your transactions each time you charge, focus on cash back cards. Some have a flat rate (such as 2% cash back on all purchases) while others give you the opportunity to earn more or less on spending categories (such as 5% cash back at restaurants and 2% at supermarkets). You can usually apply the cash as a statement credit to pay down a balance, have the earnings sent to your bank account, or buy things like gift cards.
- Points or miles. You will earn a flat rate (such as 2X points on everything) or tiered (such as 5X miles on some categories and less than that on others) rewards as you charge. Some are general purpose accounts while others are co-branded, such as airline, hotel, and gas cards. For all, you can redeem the rewards for a wide variety of products and services.
Whichever card you get, as soon as you charge the amount necessary to meet the minimum spend within the designated time frame, the welcome bonus will be available to you.
What is a welcome bonus on a credit card?
Consider a bonus a welcome gift from the issuer to you, the new cardholder. With hundreds of credit cards available, it’s a kind of “thank you for choosing us” present.
Although the company may take an initial loss on the bonus, your future transactions will soon make up for it. Credit card issuers charge merchants interchange fees of between 1% to 3% each time you use the card. Therefore, even if you never carry over a debt, the issuer still earns revenue when you make a transaction.
In general, the higher the welcome bonus, the higher the minimum spend. Also, rewards expressed as points and miles are typically worth more than cash when you redeem them for things like travel.
Be aware, though, that the most generous credit card welcome bonuses are typically on accounts that have high annual fees. Those fees help the issuer offset costs associated with expensive perks and benefits attached to the account, such as insurance products, concierge services, and airport lounge access.
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The best intro offer credit card, therefore, will be the one that matches your lifestyle and makes long-term financial sense for you. After all, if you don’t use the perks, the annual fee will be a waste of money and will eventually offset the value of the bonus.
Smart ways to meet the minimum spend requirements
After identifying the card you want, plan for how you will meet the welcome bonus requirements. There are two basic methods to reach the minimum spend:
- Charge regular expenses. If you usually use your debit card to buy $400 worth of groceries every week, and your new card offers a $300 cash bonus for spending $1,000 within three months, use your new credit card instead. In three weeks you’ll reach the goal.
- Charge a saved expense. Another strategy is to charge something out of the ordinary, but that you have saved for, like a vacation. In that case a travel card with 60,000 bonus miles for a $2,000 minimum spend may be ideal. If the total cost of your flights and hotel accommodations meet that figure, you will earn the bonus immediately.
However you meet the minimum spend, commit to deleting the entire balance before interest is applied. If you don’t, the value of your bonus declines.
For example, imagine you applied for a card with a $200 welcome bonus, and you reached the $1,000 minimum spend. If the account has a 24% APR and you only send the minimum amount due, $20 in fees will be added to the bill. The net value of bonus drops to $180. If you maintain a revolving debt or add to it, the bonus will eventually be worth zero.
How to keep track and stay on budget
To meet your minimum spend by charging regular and periodic expenses, it will be essential to track your charges. If you don’t you can end up in debt or fall short of your goal.
To monitor your progress and get your payment in before fees are added:
- Download the credit card issuer’s app. On a daily or weekly basis, review the amount you’ve charged.
- Break up the minimum spend. Need to charge $2,000 to get the bonus? If you won’t have the available cash to satisfy the balance in one month, parse it out. If the account gives you four months to meet the threshold, $500 a month will get you there.
- Pay throughout the month. Facing any kind of bill can be stressful, so you may want to delete the debt off weekly or after each transaction.
- Enroll in automatic bill pay. The issuer will charge a late fee if you miss the due date, which will reduce the net worth of the bonus. To prevent this from happening, sign up for your credit card issuer’s automatic bill pay system.
Tip: If you don’t need or want to charge enough to meet a big minimum spend, you may want to pay for other peopls’ expenses. For example, you may pick up the check for a group dinner instead of just paying for your own meal. As long as they send you the money immediately (a good payment app can come in handy here), you will be on your way to the bonus without busting your budget.
Common mistakes to avoid while trying to earn a credit card welcome bonus
As simple as meeting a credit card’s minimum spend can seem on the surface, the most well intentioned and informed cardholder can make mistakes. Here are some of the most common:
- Waiting too long. You do not want to have to spend on something you don’t need at the last minute just to hit the minimum spend. Or worse, miss it entirely and forfeit the bonus. Keep abreast of your charging and mark your calendar for the date you need to meet that goal.
- Getting multiple welcome bonus cards all at once. It’s tempting to open a lot of new credit cards to get the bonus for each, but that means you’ll have to charge a lot of money. Trying to meet many minimum spends and stay out of debt can be tough, if not impossible.
- Applying for unattainable cards. Accounts offering the most lucrative welcome bonuses can have tough credit requirements. If you aren’t eligible, you’ll have an unnecessary hard credit inquiry on your credit report, which can lower your credit score.
- Getting the wrong rewards card. It does make sense to earn a bonus and rewards as you charge, but you may find points a pain to redeem, or the amount of cash you earn is too low. Annual fees are fine when you get more out of the card than it costs you. Take the time to match the card to your life.
Best credit card sign-up bonus
Credit card issuers are eager for your business so frequently develop compelling new offers. Look for:
- Major cash back bonus. A $200 cash back bonus is common but a few issuers have raised that sum to $300.
- Various reward redemption options. If the card’s bonus is expressed in points or miles, check to see the different ways you can redeem it. Some issuer’s have more options than others.
- Highest rewards rate. You will get the most out of your bonus when the redemption rate is the highest. Depending on what you use them for, points are typically worth between 1 and 2.1 cents each.
- Transferrable rewards. Co-branded cards, such as those associated with a specific airline, can be great but also look at their list of partners. You may be able to transfer the bonus (and other earned rewards) to a different airline you want to fly.
- Extra time to meet the minimum spend. Some credit card issuers have extended the typical three month time-frame to four or six months.
- No interest added. If you want to earn a big bonus and extra time to pay the balance without interest added, look for a card that also has a 0% APR. These deals usually last a year or more.
➤ SEE MORE:Best credit card sign-up bonuses
The bottom line on credit card welcome bonuses
When you’re seeking a new credit card, it will usually be wise to go for one with a bonus. The good news is they are available to people with a variety of credit profiles. When you select the right card, have a plan for how you will meet the minimum spend and treat the account responsibly and you can profit from the process.
