Which reward is right for you?

Each and every credit card company wants your business, and they will do anything to get it.  Offering credit card rewards is one way of doing this.  Getting rewards for what you spend on credit cards was almost unheard of even a few decades ago.  The rewards industry has really been booming as the big credit card organizations partner with many different retailers and companies in order to entice you to do business with them.  You can be sure they’re not offering rewards out of the goodness of their hearts.  They offer rewards because it is making them more money than ever before.  It is important to recognize this before we start delving into the world of credit card rewards.credit cards

Unfortunately, many people get a rewards credit card and proceed to spend more than they would if they did not have a rewards credit card.  The credit card companies love these customers because they only have to give up a few dollars in rewards here and there for the thousands of dollars this customer is giving them.  You don’t want to be this customer.  If you use the appropriate rewards card and make sure not to increase your usual spending, having a rewards credit card can be a nice little bonus on top of your regular spending.  Here are some of the more popular rewards credit card categories that are available nowadays:

Cash back:  The easiest form of rewards with no hoops to jump through for the most part.  Sometimes you just have to decide between getting a check in the mail or a credit on your next statement.  Most rewards credit cards will offer 1% cash back on your purchases.  That means if you spend $1000 for the month, you will get $10 back.  Not a huge payout by any means but better than nothing.  The key with cash back rewards is to find cards with promotional offers or increased cash back for certain categories.  For example there are some cards that offer 3% cash back for gas station purchases or 2% for groceries.  If you can find a card with an increased cash back level in a category you already spend a lot in, that can lead to even greater rewards.

Gift cards:  This is a pretty straightforward reward redemption also.  Most of the big credit card companies like Chase or American Express offer gift cards as a redemption option for some of their cards.  It’s usually at the same 1% rate or more depending on if you find a category bonus.  If there is a restaurant or store you frequent a lot, this can be a good option.  The issue with this option is that you may get gift cards for places you don’t really visit often.  If you do that, you are probably better off just getting a cash back card.  Another problem is that you will probably pay more because you rarely spend exactly how much is on the gift card.  Getting a $25 gift card to a new restaurant sounds fun, but unless you get the amount to exactly $25, you will pay more.  This is a decent option if you get a gift card for a place you already spend money at.

Merchandise:  Buying stuff from credit card companies with your reward points is almost always a bad deal.  Paying for an tablet or a laptop with points may seem like a sweet deal, but you’re much better off using those thousands of points for cash back or gift cards.  When in doubt just run the numbers.  If you can redeem those points for more in cash back than the item costs on Amazon, for example, buying stuff with points is not a good idea.  This is my least favorite redemption option.

Airline Points:  These are the most tricky but potentially most lucrative form of rewards.  I used to think if you don’t travel much then these rewards are useless.  But pretty much everyone has to travel somewhere at some point in their lives so it is helpful to have some airline miles in your back pocket.  These can be tricky because one airline can value its points differently than another one.  As a side note I use the word “points” instead of “miles” when referring to airline rewards.  This is because that is what some of the airlines themselves are doing nowadays and also because the days of airlines giving “miles” based on how many miles you’ve flown with them are becoming long gone.  As everyone knows, airlines are doing whatever they can to make money from us so they have also become more stingy and mysterious with their rewards programs.  However, there are still deals to be had if you plan ahead.

There are many different factors to consider in order to fully benefit from airline points, but the main thing to be is flexible.  Flying from New York to LA could cost 25,000 points one week and 50,000 points the next.  If you’re flexible with your dates and plan far enough ahead, airline points can be very lucrative.  Taking advantage of credit card bonuses is also a key component of the airline points game.  This deserves a whole series of posts to itself so I won’t go into too much detail, but using credit card bonuses and being flexible with my dates allowed me and my wife to get round trip first class tickets from Baltimore to Portland, Oregon for taxes only.  This came out to around $30.  This would have cost around $4000 if I paid without points.  This shows how powerful airline points can be if you play the game right.

These are the main types of credit card awards being offered currently.  It is hard to say which reward is “best” because it depends on your personal situation.  If you have some travel coming up soon, it is worth your time to learn the airline points game and maximize your travel rewards.  If you don’t like traveling much and spend a lot on gas and groceries, a cash back card might be right for you.  Determine the best card for you based on your situation.

Finally, it is vitally important to remember that the one thing that can negate any rewards earned on a card is carrying a credit card balance.  If you do carry a balance regularly, you have no business getting a rewards credit card as the interest rates are usually way higher than normal and you should be focusing on getting out of credit card debt first and foremost.  Credit card companies are just waiting for you to slip up and start carrying a balance, because they will reap the rewards in interest paid by you.  As long as you don’t carry a balance and use a rewards card wisely, they can be a  very helpful tool.

 

 

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