Here are five things you should keep in mind as you shop for a rewards credit card:
1. Not all rewards are created equal.
A generous sign-up bonus, such as free airline miles, is an attractive and appealing incentive. Even if a rewards card offers enough bonus miles to buy a free airline ticket, don’t automatically apply for it without thinking it through.
If you fly often enough to make the card a good match for your lifestyle, then go for it. But if you rarely fly and could use help with your everyday expenses, then check out a cash-back credit card instead.
There are a lot of rewards cards out there offering deals ranging from airline miles to gift certificates, so take your time and pick the right one. That way, you’ll actually be able to best profit from your credit card.
2. Different rewards for different cards.
Thoroughly read the terms so you know how the individual card’s rewards program works. Credit card rewards programs can vary between provider and card type, and it’s important to understand yours before you start charging away.
For instance, one cash-back credit card might offer 1.5 percent on every dollar you spend and give you the ability to earn unlimited points. A different rewards card might offer 3 percent cash back, but it might only offer that high rate of return in one category, such as grocery or gas purchases.
Some credit cards have a cap on rewards, meaning you earn rewards up to a certain dollar amount and then the percent you earn decreases. For example, there’s a popular cash-back card that gives 3 percent cash back on groceries on up to $6,000. After that, you get 1 percent on groceries.
Always read the terms so that you don’t miss out on any rewards to which you are entitled. Better yet, call the credit card company and ask questions.
3. Use ‘em or lose ‘em.
Some of you are rewards fanatics who would never let rewards go to waste, but there are many other consumers who want to earn rewards and then simply forget to track and use them.
A study from Colloquy and Swift Exchange released in 2011 showed that the average household failed to redeem one-third of their rewards. In dollar terms, this means they left around $205 on the table. That’s obviously not the way to take advantage of your rewards.
There are many websites that can help you keep track of what you’ve earned from your credit cards, such as Award Wallet. The basic service is free, or you can get access to an upgraded version for a small fee.
4. Overspending can negate your rewards…
People are often tempted to overspend with rewards cards because they’re trying to earn extra miles or points. Others may spend extra because their rewards card has a sign-up bonus requiring that they spend a certain amount of money in a given time period to qualify for the bonus. This can sometimes undermine the benefits you are seeking to obtain from your rewards card.
Rather than making purchases just to get rewards, use your rewards cards to buy items you were planning to purchase anyway. That way you get what you need and you also benefit from the rewards. If you get nervous about reaching the spending requirement and start buying things you don’t need, you’re wasting money.
5. … and so can interest charges.
Rewards cards may have higher interest rates than regular credit cards, which can make it expensive to revolve a balance from month to month. You’ll pay interest on your balance, which can wipe out a lot of your rewards, so watch your spending.
If you pay your balance in full by the due date every month, you can cash in on your rewards without the card’s balance looming large over the fun you’re having with those points. Either way, always use your card responsibly.
Beverly Harzog is a nationally recognized credit card expert, consumer advocate, and the author of Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made. She runs a popular credit card blog on her website, www.BeverlyHarzog.com.
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