How to Maximize Your Credit Card Cash Back Using a Discover Credit Card

I have been a Discover card holder for years because of its cash back program. The best feature of this program is that each quarter, Discover offers 5% cash back on certain spending categories, allowing you to rack up cash back faster than with any other card in certain categories and at certain times of year.

In the last nine months alone I've exchanged my cash back for $175 in gift cards to Chili's, Macaroni Grill, Lowe's, Buca di Beppo, DSW, Bath and Body Works, Bed, Bath and Beyond, and the Gap (and as you know, I'm not a big spender, and I know better than to spend on my credit card just to earn rewards).

Discover's Cashback Bonus can be redeemed dollar for dollar for cash, but to get more bang for your buck, you can redeem it for gift cards of varying amounts. With some partners, you can double your cash back. With others, you can redeem $20 for $25 or $45 for $50. I use these gift cards for things I would have bought anyway, so using my Discover card really does save me money.

Here's a rundown of this year's 5% cashback bonus categories with examples of how I've made the most of this card's benefits.

January-March: Airlines, hotels, car rentals, cruises
I bought two plane tickets on Southwest during this promotion. I ended up not taking the trip, but Southwest doesn't charge a penalty to change your ticket. So I realized that in the future, I can just buy any Southwest plane ticket(s) in the amount I expect to spend on plane fare for the next 12 months, cancel my reservation(s), use my Southwest Ticketless Travel funds later when I need them, and collect my 5% cash back.

April-June: Home, fashion
Normally I use the Chase Home Rewards credit card for all my Home Depot purchases (of which there are many) because it gives me 3% cash back, but from April to June I switched these purchases to my Discover card to get 5% back. Also, anything that I was planning to buy in March or July I tried to shift to April or June to maximize my cash back.

July-September: gas, hotels, theme parks
Last summer I went on a road trip during August and Discover was having this same promotion. Gas was $4 a gallon at the time, so the cash back really helped ease the sting of that trip. This year, I've added my boyfriend as a cardholder so he can help me rack up the rewards.

October-December: grocery stores, restaurants, movies
You have to buy groceries anyway--you might as well get cash back while you're at it. Our household spends at least $250 a month on food, so for three months we'll get $37.50 back.

You can also earn 5% to 10% cash back year round by logging into your Discover account and shopping through their website. This program works just like eBates, FatWallet, or the AA Advantage Shopping Mall. You choose the store you want to shop at and click through the Discover site to the store website. Discover keeps track of your purchase and as long as you pay with your Discover card, you earn the extra cash back. Some of the stores included in their program are OfficeMax, Target, iTunes, and Best Buy. Of course, you have to take shipping costs into account when shopping online, but you'll also save time and gas money, and if you shop online anyway, you might as well get cash back.

On other purchases, though, Discover's cash back program was never a good deal. The terms were "earn a full 1% on all other purchases after your total annual purchases exceed $3,000; other purchases that are part of your first $1,500 earn .25% and other purchases that are part of your second $1,500 earn .50%."

Now, for billing periods that ended after June 1, 2009, they've removed the $1,500/.50% tier for the Discover® More® Card, the Discover Open Road® Card and the Discover MotivaSM Card.

This really isn't a big deal to me, though--it's not going to affect how I use the card. On regular purchases, you can beat .25% or .50% cash back with any number of cards. As long as you always pay your balance in full and on time, the best way to use a standard Discover card is still to only use it when you're making a purchase will earn 5% to 10% cash back.

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Post by Amy Fontinelle


TheVixenette said...

It's also worthwhile to use their Secure Virtual Card numbers and shop through their Shop Discover link (they often offer better rewards than Chase, Citi and Bank of America - I compare right before buying). You can usually get around 5% back from Old Navy/Gap and up to 40% back from (which is a great way to push your rewards to that next $20 level quickly). Two 1-yr subscriptions can get you $4 or more in one shot. Also a great way to gift people who like magazines.

Anonymous said...

Just wanted to take a moment and say "thanks" for making this blog post. Found this while searching google for "best way to use Discover cashback bonus". Till now, I wasn't fully sure how the "tier" of $1,500 for .25% etc worked. Thanks for explaining it!