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Three-digit grocery receipts, eye-watering restaurant bills, and big rent increases are just a few ways the rising cost of living may hurt your wallet.
Inflation peaked at 9.1% in 2022 — and while it’s cooled in the years since many Americans are still feeling the pinch. According to a recent Gallup poll, 45% of Americans say the current economic conditions are poor. Over 60% say recent price increases have caused financial hardship for their family.
While you can’t control prices, there are some ways to offset increased costs, including cutting back on your expenses or earning extra cash. But a lesser-known way to ease inflation pain? Maximize your credit card rewards — particularly those that offer you cash back. Here’s how.
How inflation impacts your money
Inflation is the increase in the costs of goods and services over time. It’s tracked by the Consumer Price Index (CPI), which monitors the prices of consumer goods — like groceries, gas, and housing.
Consequently, inflation decreases the purchasing power of your money. In other words, as inflation rises, each dollar in your pocket buys less than before. This can greatly impact your money, especially if your income doesn’t keep pace with the rising costs.
Let’s say you buy an item worth $1,000 in 2021. That same item would be worth $1,138 — roughly 14% more. Of course, this depends on what you bought. Some costs — like groceries and housing — rose faster than inflation over the past few years.
For younger individuals who are just starting to build wealth, the effects of inflation can be particularly challenging.
As you navigate the early stages of your career, you may find that your salary increases aren’t enough to keep up with the rising cost of living. This can make it difficult to save for long-term goals, such as buying a home, starting a family, or saving for retirement.
How to maximize your credit card rewards
Credit card rewards are one way to ease the pain of higher prices from inflation. By using credit cards that offer cash back, points, or miles on your everyday purchases, you can earn a discount on the goods and services you buy.
This can help offset the impact of rising prices and allow you to stretch your budget further. There are three main types of credit card rewards, and the one that’s best for you depends on your spending habits:
- Cash back offers a percentage of your purchases back in cash, either as a statement credit or bank deposit.
- Travel rewards offer points or airline miles you can use for travel expenses.
- Points allow you to earn proprietary rewards when you make purchases. Points redemptions can include gift cards, merchandise, or cash.
Cash back cards offer the most direct discount. For example, if your card offers 5% cash back, you get 5% off all purchases.
“Cash back cards (or any cards that allow you to cash out rewards for cash equivalents) can be a very useful tool to purchase the luxuries you want in life while you pay for the things you are already going to pay for,” says Ian Bloom certified financial planner at Open World Financial Life Planning.
Here are some tips to help you make the most of your card’s rewards:
- Choose the right card: Select a credit card that aligns with your spending and offers the most rewards for your purchases. For example, if you spend a lot on groceries, a grocery card that offers bonus points or cash back in that category could be a great fit.
- Use your card for all eligible purchases: Use your rewards card for as many everyday expenses as possible, such as groceries, gas, dining out, and online shopping. This will allow you to accumulate rewards more quickly.
- Pay your balance in full each month: To avoid paying interest and negating the value of your rewards, always pay your card’s balance in full and on time each month. Treat your credit card like a debit card, and only spend what you can afford to pay off.
- Take advantage of sign-up bonuses: Many rewards cards offer sign-up bonuses when you meet a certain spending amount within the first few months of opening the account. These bonuses can boost your rewards balance significantly from the start.
- Redeem your rewards wisely: When redeeming your rewards, look for options that offer the most value. This could mean using your points for travel, redeeming cash back as a statement credit, or transferring miles to travel partners.
If you’re very organized, you may be able to optimize rewards by having multiple credit cards for different spending use cases. As mentioned above, taking advantage of welcome offers can also lead to big savings.
“Make sure you’re not spending more than you already would be to get the benefits,” says Bloom. “The danger here is that by incentivizing you to spend in certain categories or to earn more rewards, you might experience lifestyle creep anyway!”
The best rewards credit cards to combat inflation
The best rewards cards for most people offer cash back on everyday spending. You can use these cards wherever — and however — you spend to offset your expenses and take the sting out of inflation. Here are some of our picks.
Chase Freedom Unlimited®
This card offers up to 5% cash back on qualifying purchases and no annual fee, making it a great choice for earning back cash to offset rising prices.
Cardholders get 5% cash back on travel purchases made through Chase Travel℠, 3% on drugstore purchases and dining, including select delivery services, and 1.5% on all other purchases.
A generous intro offer adds 1.5% cash back to the first $20,000 in purchases you make in the first year you have the card — that’s up to $300 cash.
Blue Cash Preferred® Card from American Express
The Blue Cash Preferred Card offers up to 6% cash back at U.S. supermarkets, making it another great choice for customers looking to offset high grocery costs.
Add that to a solid welcome offer — a $250 statement credit when you spend $3,000 in the first six months — and you have a recipe for rewards success.
The Blue Cash Preferred Card pays 6% cash back at U.S. supermarkets (up to $6,000 yearly in purchases, then 1%). You can also get 6% cash back on select U.S. streaming subscriptions. You’ll earn 3% back at U.S. gas stations, 3% on transit purchases, and 1% on all other purchases.
Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit or on Amazon.com at checkout.
Citi Double Cash® Card
The Citi Double Cash Card offers a flat cash back rate on all purchases, making it a great option for people who want a simple rewards card with no annual fee.
You can get up to 2% cash back on purchases, earning 1% when you buy and another 1% when you pay off your purchases. Plus, through Dec. 31, 2024, you can get 5% of the total cash back on travel booked through the Citi Travel portal.
A generous intro offer gives you up to $200 cash back when you spend $1,500 on purchases in the first six months of opening the card (fulfilled as 20,000 ThankYou® Points, which can be redeemed for $200 cash back).
Discover it® Cash Back
The Discover it Cash Back card has no annual fee and a generous 5% cash back rate on rotating quarterly categories. This card is good for those with multiple cards who want to optimize their cash back on certain purchases.
This card does require a little work to maintain. You must enroll in each quarter’s 5% cash back category, but once you do, you can get up to $1,500 cash back on qualifying purchases that quarter. All other purchases earn 1% cash back.
As an intro offer for new cardholders, Discover will match your cash back earnings at the end of the first year.
Capital One Venture Rewards Credit Card
If you spend a lot of money on travel, Capital One Venture Rewards Credit Card can help you score discounted or free flights, hotels, and more.
You’ll earn 5X miles when you book hotels and rental cars through Capital One Travel. You’ll earn 2X miles on all other purchases.
When new cardholders spend $4,000 in the first three months, they’ll earn 75,000 miles, equal to $750 in travel.
You can redeem miles on almost any travel expense or book travel directly with Capital One Travel. The card has an annual fee of $95.
The bottom line
In the face of rising inflation, it’s more important than ever to make your money work smarter, not just harder. You can protect your purchasing power by leveraging credit card rewards to offset the impact of higher prices.
Remember to choose the right card for your spending habits, use it for all eligible purchases, pay your balance in full each month, and redeem your rewards smartly.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.