What is the best rewards credit card for you?
Rewards credit cards offer perks that you can receive by spending money on your card. Whether you sign up for a rewards program to get cash back, airline miles or merchandise, spending money through this card can get you closer to accessing benefits like airline flights.
What is a rewards credit card?
A rewards credit card is a card that gives you rewards points for your spending. Rewards credit cards feature various rewards programs in which you can benefit from your purchases by redeeming them for perks. The rewards you can receive are usually either cash back, airline miles, rewards points or merchandise available through your credit card company.
How a rewards credit card works
Rewards credit cards work in a few ways. It's common to see a sign-up bonus. This is an offer with an incentive to spend a certain amount of money in a certain period of time in exchange for rewards. You may continue racking up points towards rewards even after hitting the sign-up bonus if there is one. The idea is to use the card for everyday purchases and rack up points that you can eventually redeem. There are often benefits associated with cards as well. This could mean a discount on a popular subscription-based service or money back if you spend at a certain place. The various rewards and benefits will depend on your card.
Types of rewards credit cards
Rewards credit cards may include:
Cash back rewards credit cards
Cash back credit cards give you back a percentage of the money you spend. Depending on the credit card, you may receive a certain percentage of cash back for every purchase you make. You may be able to redeem for cash back directly to your bank account, get as a statement credit or receive a check.
Cash back cards can either have a flat rate on the cash you receive or will offer tiered rewards. Using a flat-rate card will earn you a set percentage of cash back per purchase. Tiered rewards vary from offering you a higher cash back rate from certain categories to a larger cash back rate if you spend a higher sum of money.
Co-branded rewards credit cards
Co-branded credit cards are cards involving a partnership between a credit card company and a travel or retail company.
Brand hotel and airline rewards cards
Travel credit cards can be affiliated with a hotel, airline or online travel agency and offer you redeemable points and miles as you make purchases using the card. If you sign up for a hotel card, you can save up points and redeem them for rewards and perks related to that hotel. Alternatively, co-branded airline rewards cards encourage spending with that airline by offering additional bonus points or miles, along with additional benefits that may include free checked bags, discounted food and drinks on your flight and lounge club access at the airport.
Cash back credit cards: what to consider
Some cash back credit cards only allow you to earn rewards once you reach a specified threshold of spending on the card and may have limits to how many rewards you can earn during a certain period of time. To decide what cash back card may be right for you, consider how much you will have to spend to receive the rewards and what rewards match your preferences.
Credit issuer rewards cards
Credit issuer rewards cards have rewards programs created solely by their respective credit card companies. Similar to other rewards credit cards, you can earn points or rewards by spending money on the card and eventually redeem them. Some ways you can redeem your rewards on a credit issuer rewards card include getting gift cards, cash back, buying merchandise and booking travel. You may also be able to transfer your points to travel loyalty programs the credit card company is partnered with, such as hotel chains or airlines.
How to find the best spending category for your rewards credit card
Rewards credit cards can have multiple spending categories in which you get points, miles or cash back by making purchases in these categories. To maximize your earnings, consider getting a rewards card with spending categories that align with the purchases you normally make.
Certain rewards credit cards allow you to earn points from making purchases at an affiliated hotel. For instance, if you use a hotel credit card to book three nights at a hotel within that chain, you might receive 10X bonus points.
Co-branded airline rewards credit cards can award you miles, points, and other benefits when purchasing airline tickets.
Rewards credit cards can give you points for various purchases you make on travel. These purchases may or may not be specific to certain hotels or airlines and can be used for various aspects of travel, depending on your card.
You can earn points and other rewards when you go out to eat at restaurants with rewards credit cards that promote dining bonuses. Credit issuer rewards credit cards can as an example, provide 3, 4, or 5X bonus points for every $1 you spend at dining establishments.
Groceries and gas
When making purchases at supermarkets or gas stations, you can earn back a percentage of what you spend with a rewards credit card. Given that these are regular expenses, you can use a rewards credit card to take advantage of your planned spending to earn rewards each month.
How to know when a rewards credit card is worth it
Rewards credit card: benefits
Having a rewards credit card can allow you to get benefits and earn money back from your spending. If you sign up for a cash back rewards credit card, you can use the money you get back to pay down your credit card balance or simply earn extra spending money.
Signing up for a travel rewards program gives you the opportunity to save up reward points or miles to use for discounted or free trips. If you sign up for an airline card, you can save up your miles and redeem them for a flight. If you earn enough points on a hotel card, you could redeem them for a free stay at that hotel chain. And if you use a credit issuer rewards credit card, you can earn points on groceries, going out to eat, gas and any other purchases that you may be making on a daily or weekly basis.
Rewards credit card: risks
When spending money on your rewards credit, make sure to pay back your owed balance by the due date to avoid interest. It is crucial to keep track of your spending and try to avoid carrying a balance for an extended amount of time as a general best practice. The rewards you could get from your card are worth it as long as you can pay back what you owe on a timely basis.
Sign up for a rewards credit card with a spending requirement that is realistic for you and your budget.
As you evaluate the potential rewards you will earn, consider your monthly credit balances required to earn those rewards, your ability to repay them, including any annual fee or other charges or fees you may incur. This formula can help you figure out when a rewards credit card makes sense.
How to know when a rewards card works for you
To determine whether signing up for a rewards credit card is worth it for you, consider the cost and the benefits. Rewards credit cards offer great rewards and perks for the purchases you make. But while you are spending money on your card to earn your desired rewards, you have to make sure you don't accumulate debt in the process.
If the money you typically spend on your credit card is enough to earn rewards that you can use, you should consider signing up for a rewards credit card. On the other hand, if you would have to substantially increase your spending to earn rewards, you may end up having a large credit card balance that will take a long time to pay off.
The best time to sign up for a rewards credit card is when the spending requirements and any bonus categories match your expected spending, and the monthly balance due matches your budget.