Credit Cards give you “free money”

Credit Cards give you “free money”

Free money? Am I reading that correctly?
— You

Yes you are. Sound baffling to you?

Let me explain.


Earning Rewards Points on Credit Cards is a passive and effective way to get a return (“free money”) on your usual expenditure. The exact amount varies and is roughly dependent on the following factors:

  • Your earn rate (e.g. 1 point/$1)
  • Your Rewards Program (FlyBuys, Qantas Frequent Flyer, Velocity Frequent Flyer)
  • Your expenditure

Based on an example of using the AMEX Explorer for $36k worth of annual expenditure, you are likely to get $500 in Gift Cards worth of “passive” return just for your usual expenditure. See below for a breakdown of the $500 return.

To find a card that is suitable for you, you will need to weigh up the annual fee against the value of the benefits you expect to realise from the card over the course of the year. It is important you pick a card where the expected benefit is greater than the annual fee.

There are two primary ways you can obtain “free money” from Credit Cards:

  • By broadly following the guidelines above, and thus finding a Credit Card which offers you a return greater than the annual fee
    • The “return” can be a direct monetary return in the form of Gift Cards, or other subtle benefits such as Travel Insurance and Lounge Access
  • By jumping from Credit Card to Credit Card and taking advantage of sign-up bonuses, and cancelling before the annual fee for the second year is charged

The second option allows you to earn and accumulate at a much faster rate, because the sign-up bonuses often equate to several hundreds of dollars worth of gift cards (several tens of thousands of points) which would otherwise require several tens of thousands of dollars in purchases.

However, there is nothing stopping you from doing both (like me) – but this will require more effort and management.

Credit Cards give you “free” money

One of the best things about Credit Cards is the ability to earn “Rewards Points” on (almost) every purchase.

This is “free money” because assuming you do not change your spending habits as a result of holding a Credit Card, you were going to buy whatever you’re buying anyway, but rather than using a Debit Card to purchase it which earns you no points, you’re now earning a small amount of “return” in the form of Rewards Points.

One of the most important things to be aware of is that you must not be paying interest on any ongoing debt on your Credit Card. If you are paying interest on your Credit Card, you should not own a Credit Card as the interest owed will likely cost you more than any of the “benefits” you realise from the Credit Card.

Keep in mind the “value” of your return in the form of points is quite minimal, typically 1% or less.

However, you can set yourself up by applying for one good Credit Card which offers you points of significant value and use it long term, you’ll probably find that even if you “review” your points just once a year, you’re probably likely to be able to obtain a gift card worth several hundreds of dollars. The actual amount varies depending on:

  • Your earn rate (e.g. 1 point/$1)
  • Your Rewards Program (FlyBuys, Qantas Frequent Flyer, Velocity Frequent Flyer)
  • Your expenditure

Earning Points from your regular expenditure

This example is based on the AMEX Explorer that I recently posted about.

However, this ignores the 100k Membership Rewards Gateway sign up bonus which nets you an effective additional $700 worth of value in the form of points. Read the post if you wish to find out about the promotion in more detail.

This example only looks at the general ongoing long-term benefits and features of the card.


  • Monthly Expenditure: $3000/mth
  • Annual Expenditure: $36000/yr
  • Points Earn Rate: 2 Membership Rewards Gateway points per dollar
  • Gift Card Cost: $50 Coles/Woolworths Gift Card for 6750 points.
  • This means in 72000 points, you can get $500 ($50 x 10) worth of Coles Myer Gift Cards with 4500 points leftover.
  • Percentage return: 1.39% return: $500 as a percentage of the $36000 annual expenditure

With this example and the assumptions above, you are effectively getting “paid” $500 to hold the Credit Card every year. This is in addition to any sign-up bonuses that may be present at the time you apply for the card.

I also want to point out that using points on Gift Cards is in fact generally seen as one of the not-so-wise ways of using points. I will dedicate a future post to explain my views on using points on Gift Cards vs Flights as it’s quite a specific and detailed topic.

Taking advantage of a Credit Card sign-up bonus

Using a different Credit Card example, take the ANZ Frequent Flyer Black for example.

Card Summary:

  • Spend $2500 within 3 months and get 75k Qantas Points
    • $100 Woolworths eGift Card costs 19k Qantas Points
    • 4x $100 Woolworths eGift Card costs 76k Qantas Points
  • First year annual fee waived
  • 2x Qantas Club Lounge passes per card year

If you are likely to be able to spend $2500 within 3 months without changing your spending habits, you can see this as effectively getting paid $400 (Gift Card value) to hold this Credit Card for the first year.

There are ways to “cheat” to reach the required spend threshold, for which I will make a dedicated post.

Don’t forget, you will earn points on the $2500 expenditure as normal anyway (in addition to the bonus) which will earn you 1 Qantas Frequent Flyer Point (QFF) per dollar spent. This will mean your balance will be at least 77500 QFF Points after factoring in all bonuses and regular points earned.

Want to really accelerate your points earn?

Take advantage of sign-up bonuses offered by Credit Cards, and be prepared to jump from Credit Card to Credit Card. It is much faster than simply earning from ongoing spend. Ideally, you’ll want a card that waives the first year annual fee.

At the time of writing on 15 May 2017, here are some notable sign-up bonuses available:

However, don’t go out applying for all at once! As each Credit Card application takes up a “credit enquiry”, it is important you space out your applications. It is for this reason that I generally try and aim to apply for the best offer available to me at that point in time, because it is likely that you will not be able to take advantage of all sign-up bonuses.

Most importantly, don’t forget to cancel it before the annual fee gets charged in the second year. In some cases you may still be able to get a refund shortly after the annual fee has been charged for the second year, but don’t count on it.

Feel free to leave any questions as a comment, and don’t forget to subscribe if you enjoy my content!

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