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How to Get the Most Out of Your Rewards Credit Card

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Rewards credit cards may sound like free money, but that’s not always the case. Credit card companies typically use rewards programs to attract consumers that like to travel, rack up points or burn through gallons of gas on long road trips. If you sign up for one of these cards, you may be able to earn a free flight, cash back rewards or discounts on gas, groceries and other everyday purchases. Whatever the reward may be, there are a few things you should keep in mind when using these cards. Learn how to make the most of your rewards program without spending more than you need to.

rewards cards

Choose a Rewards Credit Card That Works for You

There are lots of different rewards credit cards to choose from. Most banks and credit unions will tailor their cards to specific individuals, such as frequent travelers, families with large grocery bills or those with long commutes. Compare credit cards and select one with a rewards program that suits your unique lifestyle. There’s no point in signing up for a card that comes with rewards that you can’t use.

Think about how you spend your money and whether these rewards will help you save in the long term. It may be tempting to earn points for a free flight or hotel stay, but if the card requires you to spend hundreds of dollars on products you wouldn’t normally buy, it’s probably not the card for you. The best rewards credit cards use a cash back or points system which helps you save across multiple purchase categories. For example, you may earn up to 5% cash back every time you use your card. Some rewards cards come with rewards points or cash back, as well as statement credit for certain purchases that could save you hundreds of dollars per year.

To qualify for a rewards credit card, the financial institution will need to look at your credit score. Cards with more rewards generally require higher credit scores. Don’t settle for a card that doesn’t match your spending or have the type of rewards you want. Consider holding off until you can qualify for a better card that suits your needs.

Check with your current financial institution or a local credit union to see what options are available to you based on your current financial situation. Don’t forget to check the interest rate when signing up for a rewards card. If the card has high interest rates, the rewards may not be worth it considering how much you will have to pay in interest if you have a balance on the card. Some rewards credit cards also have an annual fee, so compare the annual fee with the potential savings and rewards you can receive.

You won’t reap the benefits of having a rewards card if you carry a balance on your card. This money will only accrue interest, which will take away from any rewards you might receive. Depending on the interest rate and your financial history, you might save more money by going with a non-rewards card with a lower interest rate.

If the card has high interest rates, the rewards may not be worth it considering how much you will have to pay in interest if you have a balance on the card.

Read the Terms

When we say, “read the terms,” we don’t just mean the bullet points on the envelope that arrives in the mail. The terms and conditions may be lengthy, but take your time going through the rewards system to make sure you know exactly how the card works. The last thing you want is to spend a bunch of money on products and services only to discover that these purchases don’t qualify for the rewards program. Some cards may come with a rewards cap, limiting how much you can earn within a given period. Others may exclude specific purchases or locations and ask that you only use the card at participating stores and businesses.

Some rewards programs may only give you a certain amount of time to redeem your points. The terms and conditions may also change over time, limiting your access to these benefits. Go through all your options for claiming the benefits.

You should also know what happens to your points if you can’t pay off your outstanding balance, or if you need to close out the account. For example, can you transfer your points to another card if your finances change? Keep these questions and possible scenarios in mind to make sure you’re not signing an agreement that you might later regret.

Spend Wisely

The temptation with many rewards credit cards is to spend freely, cash in the rewards, and worry about the bill later. That’s not a great strategy. To make the most of your card, make sure nearly every purchase you make qualifies for the rewards program.

Just like a non-rewards credit card, it’s important to pay down your balance as you go. You should avoid spending more money than necessary to earn points. Make sure you can pay back the amount on time or before it’s due to avoid accruing interest.

Come up with a monthly budget to ensure you’re staying within your means.

Pay It Off

If you spend more than necessary, you may wind up with a reward, but also run the risk of incurring debt. That debt will continue to rack up interest month after month, which will compound over time. This is when your interest starts to collect interest, which can make it difficult to pay the debt off. That’s why it’s important to pay off your rewards credit card in full every single month. Before using your card, make sure you can pay the bill as soon as it is due.

Put Your Rewards to Use

Depending on the nature of the rewards program, it may be better to save your points/earnings until they accumulate. For example, the credit card company may offer incentives to keep racking up points instead of spending them as they accrue. A hundred points may equal $25 worth of credit, while 200 points equals $75 worth of credit.

Cash back is usually the easiest option, but that’s not always the best bang for your buck. Consider swapping your cash back for points or discounts on products that you’d normally buy, such as a gift certificate or free flight. The value of the item may be worth more than what you’d earn with cash back. But the opposite may be true as well. For example, the company may offer a $25 gift card for 200 points, with $25 cash back for just a hundred points. Read the terms and conditions to see which option is best. Some credit cards may offer bonus points and sign-up bonuses for their higher-tiered cards, but these usually come with a higher annual fee as well.

There are so many reasons to choose a rewards credit card. If you are a responsible borrower, you can rack up points on the items you buy every day. The trick is to use the card to maximize your benefits without taking on more debt than necessary.

Don’t be afraid to contact your bank or credit union to learn more about the rewards program before applying. Spend some time researching the card and consumer reviews online to make sure it will benefit your finances in the long run.

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