How to Rack Up Extra Rewards Points by Buying Gift Cards

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When you're out of ideas for buying a present, a gift card can be an easy way out. Not only are gift cards available for use at most major retailers, but they're easy to find. You can buy gift cards while doing your other shopping at supermarkets, office supply stores, and drugstores. And if you're trying to maximize the amount of credit card rewards you earn, buying gift cards can be an important tool in your arsenal.

Buying gift cards at the right store

Since many different stores sell gift cards, buying a gift card can be an opportunity to earn additional rewards for your purchase. For example, some credit cards offer bonus rewards at grocery stores, which typically have large racks full of gift cards. Also, there are small-business credit cards that offer as many as five points per dollar spent at office supply stores, which can have a vast selection of gift cards.

In fact, some credit card rewards enthusiasts will often buy gift cards for their own personal consumption, in order to earn bonus rewards for their purchases. For example, if you have a large home improvement project, you might choose to purchase Home Depot gift cards at an office supply store using a small-business credit card that offers you 5x points there.

Purchasing gift cards to meet a minimum spending requirement

Many credit cards offer extremely valuable welcome bonuses of points, miles, or cash back to new applicants. However, these offers usually require you to spend a specific amount, often several thousand dollars, within a limited time period — typically three months. If you are unable to meet that requirement through your normal spending, you could consider purchasing gift cards that you can use later. Of course, you shouldn't consider doing so unless you are able to avoid interest charges by paying off your entire statement balance in full.

Retail versus general purpose gift cards

When purchasing gift cards, you have two options. The first is to purchase a gift card for a specific retailer. These are sometimes called "closed loop cards," because you can only use them at that retailer. Closed loop cards will not carry any additional fees, so a $100 gift card will only cost $100.00. On the other hand, these cards can only be used for purchases at a single store or restaurant.

The other option is to purchase a general purpose gift card that allows you to make purchases at any retailer that participates in a payment network such as Visa, MasterCard, or American Express. These are known as "open loop gift cards." While they offer additional flexibility, you'll have to pay fees to activate and use them, which can be as high as $8.95 per card. Furthermore, there are some retailers that won't allow you to purchase generic gift cards with your credit card.

Earning additional rewards from your gift card purchases

Beyond the rewards offered by your credit card issuer, it's also possible to earn additional rewards directly from a store. For example, some supermarkets will give you fuel points for all purchases including gift cards. These points will allow you to save money when purchasing gas from their fuel centers. And wholesale stores often give their members some amount of cash back for their annual purchases, which can include gift cards. (See also: Best Credit Cards to Use at Costco)

Gift card reselling

Some hobbyists have found a way to earn credit card rewards by buying discounted gift cards and then reselling them. With these transactions, the buyer might take a small monetary loss, break even, or even make a very small profit, all while earning enough points, miles, or cash back from their credit cards to justify the purchase.

However, this isn't an easy way to generate reward points or to earn money. Anyone who gets into this hobby should be extremely organized with their finances, and should never incur credit card debt in the process. The debt will negate any small value you gain from the rewards you earn. Also, there's no guarantee you can offload the gift cards, or that selling fees won't eat up any of those gains, either.

Gift cards can make for good gifts, but there are a lot of other uses for them. By buying the right gift cards from the right retailer, you can possibly earn valuable rewards for your purchases.

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