This is a guest post from Mr Credit Card. Today, he is going to write a guest post about ROI on credit cards (which I guess fits the theme of my blog).

Credit cards are like knives. You can hurt yourself with them, or they can be great tools. Today, I’m going to talk about how to increase your "ROI" on your credit card use. But first, let’s talk the how your credit card ROI is correlated with how you use your card.

Negative ROI – If you carry a balance on your credit card, then your use of credit card is a negative ROI. That is because you are paying interest. If all you are paying in the minimum payments, you’ll experience a negative ROI for many years!

But you could also experience negative ROI even if you pay your bills in full. How? By having a vanilla Visa or Mastercard that charges an annual fee. I have friends who pay their bills in full, have only one card that charges an annual fee and yet does not have any reward program. If you have such a card, get a new one and cancel the one that charges an annual fee.

Neutral ROI – If you pay your bills in full, and have a no annual fee credit card but you are not earning rewards, then as far as I’m concerned, you are really nothing out of credit cards other than the convenience.

Positive ROI – Getting a positive ROI from credit card use requires that you pay your bills in full and do not carry a balance. For some, this comes naturally. For others who struggle with this, you have to come around to the PIF (pay in full) crowd to reap the full benefits. Below are methods of credit card use that results in positive ROI. I’ll classify them into various levels.

Basic Level 1 Tactics

Using a simple cash rebate credit card – The most basic way to get positive ROI is to simply get a credit card with cash back rewards. Typically you will earn 1% rebates. Almost all cash back cards have no annual fees and so by simply getting one, you will automatically get some money back.

Using a simple reward credit card – If earning cash back is not your thing, then at least get a basic rewards credit card. Most credit card issuers have their own reward program. Typically, you earn one point for every dollar that you spend on the card (which equals 1% in cash back terms). Rewards points can be exchanged for things like airline tickets, gift cards, merchandise and even donated to charities.

Using credit cards’ shopping portal – Most credit cards these days have shopping portal. These shopping portal connects you various online stores like GAP.com etc. By going through these shopping portals and using either your cash back or reward cards, you can get rebates or earn extra points. For example, Discover has shopdiscover.com, Chase has a shopping mall through their ultimate rewards programs and Amex has shopamex.com. Many cardholders do not use these features and that is really leaving money on the table.

Intermediate Level 2 Tactics

While getting a basic cash back or rewards card is a first basic step, with a little research, you could probably get more bang for your buck.

Combining cash rewards – You could take a step further by actually combining rebate credit cards. The reason you would want to do that is that different rebates cards have different formulas and by combining them, you can earn more rebates (or rather get more money back). Some cards for example pay more than 1% rebates on things like gas, supermarket, drugstores, restaurants. The best cash back credit cards gives you more rebates on these items also require no spending tiers to earn these rebates. They also tend not to put any caps on the rebates. You can also combine cash back and with gas credit cards.

Advanced Level 3 Tactics

These tactics are more relevant to folks who use credit cards for air miles.

Credit Card with Coupon Stacking – For those who do massive coupon cutting for grocery shopping, you would understand the idea of coupon stacking. That means using a manufacturer’s coupon and combining it with a store coupon. When you combine that with using a cash rebate credit card, you will get even more bang for the buck!

Applying 2 cards for bonus miles – This is a favorite tactic for frequent fliers. Many airline credit cards with frequent flier programs offer sign up bonuses that is often enough to get you a free round trip coach class ticket in the US. It is not uncommon to get 25,000 bonus miles just for signing up. Some cards now impose things like you need to spend $500 before you get these miles, but this should not be an obstacle. Here is the kicker – when you and your spouse and partner get a card each, you can earn twice the bonus miles instantly. Very often, that equates to two free airline tickets for your next vacation. That is a quick ROI.

Giving Miles – Once in a while (especially during summer and vacation season), frequent flier programs give bonus miles if you give your miles away. These could be as much as 30% to 50% depending on the offer. Well, best thing to do is to give it away to your spouse or partner!

Credit Card Churning – This one is a little controversial and should be done by those who have good credit but are not too bothered by any potential drop in scores. This is a favorite tactic of savvy frequent fliers. Some credit card companies even allow you to do that. For example, you can apply for any one of Citi’s American Airline Advantage cards. You can apply one personal and one business card (that’s 2 bonus sign up right there). Then spend $750 to get your bonus miles. One the bonus miles are in your AA account. You can cancel the card and then reapply 65 days later. One of our blogger Jason has been doing this with success. But doing this a few times over one year, you would earn enough miles for an airline ticket without flying!

Obviously if you need to apply for a mortgage or car loan in a couple of years, it’s best not to engage in something like that. It’s tough to say what the effects on your credit score will be simply because folks who engage in this practice typically pay their balance off every month, have good credit scores and are not really bothered at all with any slight decline in their credit scores. All they want is their free airline tickets. But you want to try this, I would suggest you get a copy of your credit report (and even scores) first and monitor how your scores fluctuate as you open and close cards.

Taking advantage of airline alliances – Airlines have alliances (eg Star Alliance) where they allow their partners frequent fliers to use miles on their airlines. So rather than choosing to earn miles on the airline you are likely to fly, you can choose to earn miles on another airline. For example, it takes 90,000 miles to fly to say Europe with one airline. But if you use your points on another airline, it may only require 70,000 miles. Hence, taking full advantage of airline alliances is another way to increase your ROI on the miles you have accumulated with your credit card. You can also choose to get affinity cards in programs that allows you to transfer points to miles of multiple frequent flier programs. Examples of such program include the Starwood preferred guest program and Membership Rewards from Amex.

Something To Avoid

While I’ve given you a few ideas to ponder over, there are some things which you just shouldn’t do. For example, in the past, folks used to use their credit card to purchase mint coins (and earned lots of rewards at the same time). These days, many credit cards companies (especially Amex) consider these purchases a trigger event and would even close your account. It triggers a red flag because buying coins could potentially be considered a potential money laundering activity.

Conclusions – So there you have it, some ways to increase your ROI from the use of your credit cards. I hope you have enjoyed this post. Please post your ways to increasing your credit card ROI in the comments below.

Disclaimer! – This post is intended for those who pay their bills and full and are not tempted to carrying a balance just because you have a credit card in your wallet. If you have that spending temptation (or shopping addiction) because of a card then do not use one! And disregard the advice and opinions above!