The value of a credit card sign-up bonus

Winner winner, chicken dinner! This is where the money is at! Man, oh man this is one of the best parts about credit cards! Spend some money in the first few months, and then get a big hunkin’ reward!

HUNDREDS OF DOLLARS, I tell ya. If you can, we strongly advise you to get a credit card with a sign-up bonus. The good news is, it’s easy to do since tons of credit cards offer one.

Sign-up bonuses typically use one of the below models.

• Get X reward after your first purchase of any amount.
• Get X reward if you spend Y amount in the first Z months.
• Get X% reward on certain spending in the first Y months.

After you receive your sign up bonus, your effective reward rate is huge! In this case, you have effectively received 18.7% back on every purchase you made with this card.

You’ll notice that the effective % back only goes down after you receive your sign-up bonus. Eventually, it will level out at your base rewards rate (2% in this case). Also, the more you spend, the faster it will decrease to your base rate.

So, what does that mean? Well, in an ideal world, you spend juuuust enough to get your bonus and then you move on to the next card – with the next bonus! But as we mentioned above, there are limitations to this and possible impacts on your credit score. So tread carefully.

Pro tip – calculate your own effective % back using our online calculator.

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