Rewards Credit Cards and How to Maximize Them
Rewards credit cards are a bit of an enigma to some. We are all taught from a young age to avoid using credit cards in excess, but rewards credit cards flip this concept.
Rewards credit cards can not only help you build your credit, but they can also give you freebies, like gift cards and even vacations.
When used correctly, the best rewards credit cards can actually pay you for using them. Here’s the skinny on these profitable pieces of plastic.
What Are Rewards Credit Cards
Rewards credit cards work like any other credit card:
- You use them anywhere credit cards are accepted.
- They carry interest.
- They require minimum monthly payments.
The key benefit rewards credit cards offer is in the name: Rewards! Every time you use a rewards credit card, the card issuer gives you a percentage of your purchase back in points. Then you can use these points to purchase items.
Some rewards credit cards require you to purchase through their systems, while others, like American Express, allow you to use their points directly through select retailers.
Talk about getting money for free, so here are a few things to take into consideration.
Considerations When Using Rewards Credit Cards
Like any other credit card, there are certain things you must take into consideration before getting too swipe happy. These considerations include:
Your Ability to Pay Off the Card
Interest charges are rewards killers. Most rewards credit card rates sit in the 1.5 to 2.5% range, whereas interest rates are more than 15%, so it’s easy to see how quickly your interest charges can quickly offset and exceed your rewards.
The key here is to use your rewards credit card as a debit card by paying off any new charges immediately. If you cannot pay immediately or feel it would be too time-consuming, then you can pay it off once a month and still avoid interest fees.
The bottom line is to never carry a balance over into a new statement period, as this will eat up all those rewards you just earned. And no, you do not need to carry a balance on a rewards credit card for your points to show up, as they are added by purchase, not balance.
You can literally buy a TV today, get 5% rewards on it, pay it off today and still get your rewards points.
Maxing Out Those Rewards
Maxing out rewards is a big part of playing the rewards credit card game. You have to find out where your card gives the most rewards and use it in that store or on that product. So, if your rewards card gives 5% points at the gas station, but a debit card is used to get fuel, you’re missing out.
Attention to detail becomes especially important if you have a revolving-category rewards credit card. While these may be the best credit cards for rewards, in the long run, you have to keep a close eye on that rotating category.
Research the Best Rewards Credit Cards for You
Everyone’s spending habits vary, and this is why there are so many rewards credit cards. Do your due diligence by making a pros and cons list for what you are looking for. Then begin the research and find out which rewards credit cards fall into categories you shop in.
If you’re an avid Amazon shopper, find a card that gives big rewards there. Do you have a long commute and go through gas like crazy? Get one that offers great rewards at gas stations. If you are a foodie who buys a lot of food and enjoys eating out, look into the Premier Dining Rewards Card.
Keep in mind that this also means that you may have multiple rewards cards. With that being said, you don’t want too many cards in your name, so choose your credit cards carefully and cancel any that aren’t getting you rewards you want.
Some lenders check how many credit cards you have opened previously, and will deny you even if you have great credit. An example of this is at Chase Bank, who will not grant specific credit cards if the applicant has opened 5 credits cards within 24 months. This concept is known as the 5/24 rule.
You also need to understand what the categories mean. You may have a rewards card that offers 5% on groceries but then notice that all the groceries you bought at Walmart only netted you 1% in rewards.
This is likely because your rewards credit card has Walmart classified as a department store and only pays base rewards points at department stores. These are the types of details you will find in the terms and conditions when you sign up for the card.
Have a Rewards Credit Card Plan
Having a plan in place is key in any financial goal, but credit card rewards are even more significant. If you go into rewards credit cards without a plan in place for using these rewards, you’ll never succeed.
Rewards credit cards generally fall into these categories:
- Travel and hotels
- Gift Cards
Pick the one that fits your goals and roll with it. If you want to be a globetrotter, then pick up a travel rewards card. If you love to shop, get a rewards card that gives gift cards. If you’re not too sure what you want yet or just like great deals in general, grab a cash-back rewards card.
The cool thing about rewards cards is that if you change your mind and want to use your rewards on something else, you can often transfer your points to another card under the same issuer.