Let credit cards pay you

Frequent flier miles, cash back on gas and fast food purchases and a free 55 day loan? Many people associate the savings of cash back and miles as the only way to produce revenue from a credit card. In fact, a credit card is a great way to buy everything on an interest free 55 day loan while collecting the card’s rewards.

Credit cards and their billing cycles can be very difficult to understand. Generally speaking, a billing cycle is a 30 day period on which you can make charges followed by a 25 day grace period, or the amount of time before a credit card payment is due.

Take for example a large purchase such as a sofa. You want a great new $700 couch to put in your living room and of course want to pay as little as possible for it. If you were to charge the couch on the 5^th of the month, you would only be 5 days into your billing cycle, therefore you still have 50 days to pay it off; 25 more days in the billing cycle and 25 day grace period.

Instead of paying cash, you put the couch in a credit card for $700. You will not actually have to pay for the couch until the bill is due and you will profit from any rewards programs (such as 1% cash back) in the meantime. Just by using your credit card, you will get a nice $7 back in rewards, and receive an interest free loan for 55 days, or 50 days in this example.

Another benefit is that your cash can sit in your bank account until the payment is due. Considering a 3% yield on deposits, you will earn an additional $3 just by keeping the amount ($700) in your bank account. In total you are receiving a return of $10 for the $700 purchase that you were planning to make anyway. You can see over the course of a year how quickly your savings will add up. A credit card can be used to pay virtually everything, mortgage, utilities, gas, groceries all on a 55 day interest free loan.

If you were to use a credit card for your entire monthly budget of say $2500, you would get $25 in cash back rewards and save $11 in interest each and every billing cycle. A $36 savings just by paying with a different medium is nothing to balk at, that is like getting your cable for free.