NEW YORK (MainStreet) — When you consider credit cards, the first thing you think of is probably debt. Yet what if we told you that you could put your credit cards to work for you? That rather than costing you money, they could make you money? It's true. And while you might (might) not be able to quit your day job any time soon, you can start making a little bit of extra scratch by using your credit cards the right way.

Cash Back Rewards

Of course, the most obvious example of getting your credit cards to work for you are cash back rewards. It's better than points, because you can spend it on virtually whatever you want, including paying down the balance on your credit card. Still, it might actually be better than cash for one simple reason that Jason Steele, a credit card expert with CompareCards.com points out: "The IRS considers that to be a discount, not income." For anyone who doesn’t carry a balance, cash back is a really easy way to start getting your credit cards to work for you.

"I earn thousands of dollars worth of rewards every year," he says. "Some of that comes in the form of signing bonuses." So don't be afraid to move to greener pastures if a credit card is offering a handsome sign-on bonus. Otherwise, you’re just leaving free -- and tax-free -- money lying on the table.

However, Randy Padawer, a consumer advocate with LexingtonLaw, points out that you still need to remember the most important part of the equation: paying down your entire balance. "If you pay down your balance every month, that’s free money," Padawer said. "On the other hand, if you’re carrying a balance, you’re probably paying more in interest than the rewards are actually worth."

Cash Back Arbitrage

There is a way to quit your job and make money off of credit cards, but Steele doesn’t recommend it. "I certainly wouldn’t bet my family’s future on it," he said. Basically it works this way: people spend a lot of money on goods for the purpose of racking up beaucoup rewards points. Once that’s done, they sell the goods they’ve purchased at a profit. They’re making money off of the sale, but they're less concerned about the pure profit from retailing because of the credit card rewards.

It's known as manufactured spending, and it's certainly not for everyone. "It’s very complicated," he says. One way that people do this is through gift cards; they purchase a gift card, get the points, then sell the gift card at a slight loss.

"Very slowly you can make money off of that," he says. These people are effectively gaming the system when it comes to credit card reward points.

"It’s a cat and mouse game," says Steele, comparing people engaged in manufactured spending to extreme couponers. "The average person isn’t going to spend all day cutting coupons."


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At the end of the day, however, the main thing to remember that a credit card is effectively a loan product. Any money you spend is going to have to be paid back one way or another. If you don’t pay it back, the consequences are expensive and far-reaching: not only will you end up paying more in fees and interest, you'll also hurt your credit rating, which will make getting credit in the future even more expensive.

"Don’t go into this with blinders on," Padawer says. "Don’t think that you’re paying through the nose for credit. It’s one of the most expensive ways to borrow money."

What's more, as he points out, "you’re not borrowing it from a friend; you’re borrowing it from a massive corporation."

--Written by Nicholas Pell for MainStreet