Some credit cards make you pay just to receive their benefits. Other credit cards pay you for using them. These reward credit cards offer incentives to cardholders who make charges on their cards.
There are many different types of reward programs, but in general, the more you use your credit card the more rewards you receive.
Types of Rewards
Rewards credit cards offer several different types of rewards.
You can accumulate reward points for your purchases. For example, you might receive 1 point for every $1 you charge on your credit card. Once you accumulate a certain number of points you can redeem the points for merchandise, services, or discounts on future purchases with your credit card.
Some reward credit cards offer cash back on your purchases. With cash back rewards, you earn a certain percentage of cash for each purchase you make. For example, you might earn .05% cash back for every $1 you make in purchases. Cash back rewards can be received as a check or a credit to your account.
With airline and hotel credit cards, you earn miles and points that can be redeemed for a free flight or a night’s stay at the hotel. The amount of miles you earn per flight and points you earn per hotel differ by airline and credit card issuer.
Which Type of Reward Credit Card is Best?
When it comes to reward credit cards, cash back is the most universal option. If you don’t travel much, airline or hotel rewards cash back is your best option.
If you’re a frequent traveler, look for a rewards credit card that’s co-branded with your most traveled airline. That way, you’ll earn the maximum rewards for your purchases. The same thing goes for hotels – choose a co-branded hotel card to earn the most rewards.
Reward Credit Card Watchouts
Rewards credit cards can lead you to accumulate more debt than you can handle by encouraging you to spend more money to earn more rewards. Some estimates show that credit card users charge double the amount on rewards credit cards than on regular credit cards. If you’re not careful you can end up with more debt than you can afford to repay in exchange for rewards that you may never use.
With a rewards credit card, just like any other credit card, you shouldn’t charge more than you can afford to repay. Use your credit card to purchase something you would have purchased anyway, not to purchase things you couldn’t afford if you didn’t have a credit card.
Pay your balance in full each month. Rewards credit cards often have high interest rates, so carrying a balance on one of these credit cards can be more expensive than other credit cards. You can afford hefty finance charges by paying your balance in full at the end of each month.
Rewards aren’t plentiful. In fact, many reward programs are set up to keep you from earning the maximum amount of rewards. For example, many reward credit cards have a cap on the amount of rewards you can receive.
For cash back reward credit cards, you may have a dollar limit on the rewards you can earn within a period of time, like $300 in one year. Similarly, on credit cards that let you earn points and miles, there will be a limit on the points you can earn within the year. Even if there’s not a limit on what you earn during a year, there may be a limit on what you can redeem in a year.
Rewards typically have an expiration date. If you don’t use your rewards within a certain period of time, they’ll be forfeited. Make sure you know whether your credit card has an expiration on your rewards. Use your rewards before they expire or your purchases will have been in vain.
Don’t sign up for rewards you won’t use. Rewards credit card often come with annual fees that make the card unattractive unless the rewards you redeem are greater than the annual fee. Don’t waste your money on rewards that will just accumulate and then expire. If you rarely buy books, the Barnes and Noble MasterCard isn’t for you.
Choosing a Rewards Credit Card
When you’re shopping for a new rewards credit card, all the regular shopping rules apply. For example, check the interest rate and fees before signing up for the card. There are some other reward specific questions you should know before you accept the credit card.
What are the rewards? Are you getting cash back or points. Not only do you want to know what rewards you’re getting, you should also know where you can use the rewards.
Are there any minimum spending limits? With some credit cards, you must make a certain amount of purchases before you ever start receiving rewards. With this type of reward program, you may not ever receive any rewards because you have to meet the minimum purchase threshold first.
When do the rewards expire? You don’t want to rewards to expire before you get a chance to use them. Look for a rewards credit card with a long expiration.
Is there a limit on the rewards? Unlimited rewards are ideal, but not common. If you see a rewards deal that seems too good to be true, look over all the other terms to make sure there’s not a catch.
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