Credit Card Reward Programs: What You Need to Know

woman using credit card on her phone

Swipe, tap, pay, and – wait for it – earn rewards! That’s how many credit card reward programs work. But are they all as good as they sound? Let’s dive in and get the scoop.

Understanding Credit Card Reward Programs

Credit card reward programs are perks offered by credit card companies to motivate you to use their card more often. Essentially, you earn points, cash back, miles, or other rewards as you spend.

Different Types of Rewards

  1. Cash Back: Straightforward and easy to understand. Spend money, get a percentage back.
  2. Points: Earn points for every purchase. Redeem them for goods, gift cards, or even travel.
  3. Miles: Great for travelers. Collect miles as you spend, which you can then use to buy airline tickets or upgrades.

How Do They Work?

  1. Earning Rewards: Typically, for every dollar you spend, you’ll earn a certain number of points, miles, or a percentage of cash back.
  2. Redeeming Rewards: This varies by card. Some allow online redemption, others might require a call. You choose how to use your rewards based on what’s available.
  3. Bonus Categories: Some cards offer extra rewards in certain categories like dining, travel, or gas.

Things to Keep an Eye On

  1. Expiration Dates: Yes, some rewards can expire if you don’t use them. Most of our favorite rewards cards do not expire. They will last for the entire life of the account.
  2. Caps: There might be a limit to how much you can earn in bonus categories. We typically recommend that most consumers choose a straight-forward rewards card. Ie. Get extra miles for booking online, 2x miles for everything else.
  3. Redemption Minimums: Sometimes you can’t redeem your rewards until you reach a certain number.
  4. Fees: If your card has a high annual fee, make sure the rewards justify it. This means you should make sure that you’re able to enjoy the redemptions. So take that vacation, or try a $0 annual fee card.

How to Get the Most from Your Reward Program

  1. Know Your Categories: If your card offers bonus rewards at restaurants, consider using it when dining out. One of our favorite travel cards gives you bonus points for using their booking system and bonus points for restaurant expenses.
  2. Don’t Overspend: It might sound fun to earn rewards, but remember, it’s not free money. Don’t buy what you can’t afford.
  3. Pay in Full: Rewards cards can have high interest. Those higher rates help pay for the extra perks and rewards. Try to pay your balance in full each month to avoid hefty charges.
  4. Regularly Check for Deals: Some programs offer special promotions or ways to earn extra points. This can be a great way to save on your next big purchase or vacation.
  5. Consider a No-Fee Card: If you’re new to rewards cards or don’t spend a lot, a no-annual-fee card could be a good start. Whether it’s a miles, cash back, or points card, a $0 annual fee card is a great way to see if it’s right for you.

Beware of the Traps

  1. Temptation to Overspend: Remember, stay within your budget. Rewards are nice, but not if they lead to debt.
  2. High Interest: If you don’t pay off your card monthly, the interest could cost more than what you earn in rewards.
  3. Complexity: Some programs can be tricky. If you’re confused, it might not be the best program for you. We recommend cards with easy to understand ways to earn rewards. Trying to hack the system is often not worth the hassle.

Is a Rewards Card Right for You?

Consider your spending habits. If you pay your balance in full every month and you spend in the card’s bonus categories, a rewards card might benefit you. But, if you’re someone who carries a balance or gets easily tempted to overspend, proceed with caution.

Tip: If you’re currently in a situation where you are carrying a credit card balance, consider a balance transfer card. There are special introductory offers on some cards just for balance transfers. This might give you a bit of breathing room with your credit card debt.

In Conclusion

Credit card reward programs can be a fantastic way to get a little extra from your everyday spending. But, it’s essential to understand the ins and outs. Make sure to read the fine print, know the terms, and spend responsibly.

By keeping these tips in mind, you can enjoy the perks without the pitfalls. For more financial insights and advice, keep browsing, where we’re committed to guiding you through the financial maze!



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