Planning matters

Things to Consider with a Credit Card Rewards Program

Rewards credit cards offer a great way to profit from using a credit card. If you have good credit and don’t carry a monthly balance, you can enjoy earning generous rewards with little cost. There are basically two type of reward cards: point reward cards or cash back cards.

Cash back credit cards pay back a certain percentage of what you spend (similar to a rebate). The typical rate is between 1 and 2 percent for purchases. For example, if a card has a 1 percent cash back rate, you’ll earn $100 for every $10,000 spent, or $10 for every 1,000 spent. If you want to easily earn rewards without worrying about different redemption options, cash back cards are best.

Point reward cards are more complicated and often travel focused. Point rewards offer a certain number of points for every purchase, such as 3x points per dollar spent. Airline reward cards usually provide airline miles for each dollar spent. Depending on the card, you can redeem the points for statement credits or travel expenses, airline miles or transfer them to a partner airline or hotel loyalty program. These reward cards work well for people with credit card experience who are willing to put in some work to get a good value for their points. If you do not travel regularly, the cash back option may work better for you.

Determining what credit card to use and the benefits that will work best can be an undaunting challenge. Here are some tips on how to compare:

  1. Compare credit cards. What are the points or cash back worth?
  2. Review bonus offers for signing up
  3. Annual fees
  4. Once you compare the value of cash back or points, determine the best value based on your spending and needs

Websites such as thepointsguy.com and others can provide you with a summary of each credit card benefits, special offers and annual fees. Keep in mind many websites that provide credit card information are compensated by the credit card companies. Do your own research after reading card reviews.

There are good reward values out there for those willing to do some leg work. This can be a profitable if you use your credit responsibly and pay your credit card balance in full each month. Compare using a credit card to get a reward vs. paying with cash and getting a discount. Use credit cards only when it makes sense to do so and reap the rewards.