Make $1,000 a year with just two cash-back credit cards

Our family of four makes nearly all our purchases with credit cards, spending about $4,000 a month (but we pay them off every month). Getting an average of 2% in cash back lets us save $1,000 a year, and thus reduce if not eliminate the “credit card tax.”

Cash back cards are much better than other types of reward cards for most people. Some cards give you reward points that you can then use to buy products from selected merchants, while others give you air miles. The former limits your use of your reward, while the value of air miles is slowly, but constantly inflated away by the airlines: every year, it takes more miles for the same flight, and it’s getting harder and harder to book a seat with miles alone. In addition, some miles expire: I lost more than 30,000 miles with United, and didn’t even get a warning.

As shown in my post about the best credit card, you need more than one card to get the most savings. Here are the best cards by purchase group. I used data from Mint.com to look at our largest expense categories, and identified the best card for each group. You won’t find any cards with rotating rewards categories in this list, since it’s cumbersome to remember which card to use when, and they mostly don’t give you good rewards in those categories where you really spend the most.

Best cash back cards by expense category

• Groceries: 6% cash back (AmEx Blue Cash Preferred, well worth the $75 annual fee, but check that your preferred supermarkets accept AmEx)
• Department stores: 3% cash back (AmEx Blue Cash Preferred)
• Everything else (including child care): 1.5-2% cash back, using the Fidelity Investment Rewards Visa card

To keep it simple, you could just use these two cards. We get over $1,000 in cash back per year from these two. If you are willing to carry more cards around, consider these:

• Restaurants and travel: 2% cash back with AmEx/Costco True Earnings card
• Gas: 5% cash back with PenFed Visa Platinum Cash Back card

Don’t apply for more than 2 cards in the same quarter, or your credit score will take a hit and your application might be declined.

All of these cards have no annual fee, except where stated (AmEx Blue Cash Preferred).

The PenFed Visa Platinum Cashback Rewards Card, which I’ve been using for years, pays 5% cash back on gas purchases, all the time. It takes 15 minutes to get the card, which is time well spent if you buy a lot of gas. Everyone can get it by joining the National Military Family Association for a one-time payment of $20 (no need to renew your annual membership) and opening an account at PenFed with just $5.