Do you have a credit card with a rewards program? While there are pros and cons to acquiring credit cards, one major benefit is the reward points one can earn. Yes, these perks can initially entice us to apply, but they can also deliver some real-life bonuses that we get to enjoy.
Let’s look at the different rewards credit cards and which ones could be right for you.
Rewards Credit Cards
We’ve all seen TV commercials featuring actors, sports stars, and celebrities touting the benefits of having certain rewards credit cards. “Unlimited cash back on every purchase!” and “Earn miles on every dollar!” are said with enthusiasm. What does this all really mean?
As a caveat, we want to mention that there are still non-rewards credit cards available. These cards offer rewards of a different kind however, in the form of reduced interest rates, easy balance transfers, no annual fees, and zero percent annual percentage rates for a time. Most of these cards don’t have an additional reward program, but they can still be good cards to have if you don’t care about or need extra benefits.
In looking at credit cards that offer a rewards program, we can break them down into two basic categories: cash back and travel rewards.
Cash Back Cards
Cash back cards are just what their name implies, they give back to you a percentage of the dollar amount you spend after you make a purchase using the credit card. This can be as a check, a credit on your monthly statement, or gift cards.
Let’s be clear: this is not free money.
Money had to be spent in order for you to receive something. Cash back is a marketing strategy used by banks to get you to use their credit card. It’s not a bad thing, and it comes with some benefits, but it is important to recognize it for what it is.
The things to keep in mind with a cash back card:
● Usually, these cards have no annual fee.
● The annual percentage rate (APR) is higher than non-rewards cards.
● There may be a waiting period before a cash back reward is available.
● They are fairly low-maintenance and have easy-to-use benefits.
Travel Rewards Cards
Travel rewards credit cards are akin to a cash back card. So, when you buy something with these cards, you receive miles or points towards travel, such as at airlines, car rental agencies, hotels, and resorts. Travel rewards cards have an annual fee and high APRs.
These credit cards fall into two subcategories: general travel credit cards and airline credit cards. The credit card company tracks the points and miles, but you as the user must determine how to get the most benefit from the points and miles accumulated. Let’s take a look.
● General Travel Rewards Card. When you spend and make purchases using these reward cards, you earn reward points on the dollar amount. Sometimes there are bonus points awarded for making a purchase in certain categories, like gas, groceries, and restaurants. These points can allow you to book a flight or hotel through the credit card company portal, or they can be transferred to an airline or hotel loyalty program. Something to keep in mind: not all points are the same! You will need to investigate what one point actually means. It’s helpful to use the information provided by sites like The Points Guy to determine how much your points are worth.
● Airline Credit Card. With these airline-specific cards, you earn miles on a chosen airline and their partner airlines and hotels. Coupled with being part of an airline loyalty or hotel loyalty program, these benefits can help you get free companion fares, automatic upgrades, free flights, and priority boarding. Some also grant you access to their airport lounge and pay for your TSA pre-check application.
What’s Right for You?
There is no right answer! Depending on your goals, one, both, or none of these types of cards may be beneficial for you. To help you narrow it down, you will want to ask yourself a few questions.
What are my current spending habits? Do you cook at home frequently or eat out? You will want to look for cards with higher points on groceries and restaurants to earn more. If you have a long commute or travel frequently for work, you will want to look for cards with higher points on gas or travel miles.
How do I plan to spend rewards? If you have a vacation, family reunion, or heavy business travel schedule, then a card that helps accumulate miles may make more sense, especially if you prefer a particular airline. But if you would rather have the cash to spend on bills, dining out, and home improvements, a cash back card might be better.
Can I pay off the balance each month? This may be the most important question of all. If you are planning on carrying over any balance from one month to the next, these cards will cost you real money in interest rates. Having a rewards card should not spur you on to spend more than you normally would or cause you to go into debt. No free flight or hotel stay is worth that.
The appeal of receiving rewards like cash, gift cards, flights, and hotel stays is real. These benefits can provide you with some tangible advantages and enjoyable perks. With a little examination, thought, and reflection on what is important to you, one of these cards may help you reap some well-earned rewards.