If you are looking to acquire a rewards credit card, you must realize that not every option within this credit card category is created equal, at least not for each individual user. In fact, there are intricacies within this card type that can make or break the overall benefit one garners from the use of such a card. The first thing that you must understand about rewards credit cards is that they are broken into two primary groupings: Points/miles and cash back.
Credit Card Points/Miles
This rewards credit card category allows you to accumulate either points or miles at a specified rate with each purchase you make. These rewards can then be redeemed for things like free travel accommodations, VIP treatment and access and discounts. However, credit card companies can change how many miles or points are needed for redemption whenever they so choose, devaluing already earned rewards and making careful and proper use of rewards credit cards extremely important.
Advantages for Travelers
Miles and points rewards credit cards are usually travel-related and are often tied to a particular airline or hotel chain. Such cards allow users to accumulate points or miles at a relatively high rate but only redeem them for rewards with the particular company tied to the card.
Thus, you should only get such a travel rewards credit card if you travel often and are brand loyal—30,000 air miles or 20 hotel nights per year with the same company are generally good benchmarks for evaluating whether a rewards credit card tied to a particular airline or hotel chain is right for you.
Frequent use is necessary to maximize the benefits of these cards precisely because issuers can devalue miles and points at will. Traveling often while using the services of the company tied to your card will allow you to redeem rewards frequently. This, in turn, will leave you with fewer miles or points vulnerable to devaluation at any given time and will allow you to experience the card’s benefits regularly and to such an extent that devaluation will not seem quite so significant should it eventually occur.
However, should you travel often but fly with different airlines or stay at different hotel chains, a more generic travel rewards credit card might prove most beneficial to you. The Capital One® Venture Rewards Credit Card, for example, allows you to effectively earn $2 per every 100 miles you accumulate as long as you redeem them for purchases made through a travel agency or on a travel-related website. Therefore, this card serves as a very flexible, lucrative option if you require the use of varying accommodations.
Cash Back
The other main type of reward is cash. Like with miles or points, you earn cash at a specified rate with each purchase you make using your cash back credit card. However, cash cannot be devalued and is simply redeemed as a statement credit or in the form of a check.
Controlling Cash Flow
While cash back rewards are very versatile, they do require discipline. People often regard rewards as something extra, to which typical money management principles do not apply. However, the cash garnered with a rewards credit card is worth the exact same amount as that earned at your job, for example. Thus, it should not be treated as expendable or used for purchases that you would not ordinarily make.
While there are many good cash back rewards credit cards available, two of the most popular are the Bank of America® Accelerated Cash Rewards American Express® Credit Card, which provides 1.25 percent cash back on every purchase you make and the Chase Freedom®, which gives you $100 when you spend at least $800 during the first three months you account is open as well as 5 percent quarterly bonus categories and 1 percent cash back on all other purchases.
If used correctly, a rewards credit card can be a very lucrative tool. It can make your purchasing more powerful and add satisfaction to your spending. However, if used incorrectly, a rewards credit card can also represent untapped potential. The secret to proper use is self-evaluation. Know your spending tendencies and get the type of rewards credit card that best suits your needs.
Remember, though, that a rewards credit card is not for everyone. If you do not have excellent credit or do not pay your credit card bill in full each month, you most likely need a credit card that will more efficiently help you build your credit or lower the cost of your debt. Ultimately, you and your credit card must be a match.
