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Earn Rewards While Getting Rid of Credit Card Debt

May 26, 2011
Credit Cards
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If you’re carrying around some credit card debt but can make your monthly payments without too much of a struggle, you might be able to score a twofer: no interest on your existing debt, plus rewards. Many credit cards offer 0% interest on balance transfers for an introductory period, usually 6-21 months, and some of those offer ongoing rewards as well. Now, if you’re deeply in debt, getting another credit card isn’t a solution, but if you’ve got a good-to-excellent credit score, you can find a card that will allow you to get some cash back while getting rid of that debt.

For short-term repayment: Version 2 of the AARP credit card is a great card to hold for 6-12 months, but it quickly loses its luster. It offers 0% interest on purchases and balance transfers for the first year, but the kicker is that it gives 5% rewards on all purchases for six months. That offer, combined with the 0% purchase APR, means that you can get the card, earn rewards on a giant purchase, and pay off your debt interest-free for a year. If you’re carrying, or plan to carry, a balance for a little while, the 5% rewards make the AARP Visa a good choice. Despite the name, you don’t need to be a senior or AARP member to join. Lastly, in 2011 and 2012, Chase will donate $0.03 per transaction made and $1 per account opened to the AARP Foundation’s Drive to End Hunger.

For medium-term repayment: The Citi ThankYou Preferred offers 0% APR on purchases and balance transfers for 15 months, a substantial period of time, and also has excellent rewards. In the first year, it earns 5 ThankYou Points (each point is worth 1 cent if you’re patient and 0.63-0.71 cents if you aren’t) for gas, supermarket and drugstore purchases, and 1 point on everything else. The 5% rewards on gas is particularly helpful in the $4-a-gallon summer driving season. In addition, the ThankYou Preferred gives a one-time 6,000-point bonus if you make $300 in purchases within 3 months. The ongoing rewards, though, are only decent: 1% back on everything. If you’re only thinking of holding the card for a year or so, the ThankYou offers no interest on balance transfers as well as a great rewards rate tailored to family spending.

For the long haul: The Platinum Cashback Rewards card from Pentagon Federal earns our vote for the best card to discharge long-term debt while still earning rewards. From now until June 30th, PenFed is offering a lifetime 4.99% APR on balance transfers, and charges a balance transfer fee of 3%, down from the standard 5%. The card earns 5% back on gas from any station (as long as it isn’t a warehouse like Costco) and 1% back elsewhere. It pays out in simple cash, once a month. Its ongoing APR is quite low, too: 13.99%-17.99%, which beats out most rewards credit cards.

PenFed is a credit union, so you’ll need to become a member. Its core constituency is the military, so troops, those employed by defense-related government agencies (such as the Department of Homeland Security), those affiliated with the military (such as Walter Reed employees), and their families are automatically eligible. Everyone else can make a $20 donation to the National Military Family Association, a $15 donation to Voices for America’s Troops, or a cash/blood donation to the American Red Cross.