This is a guest post from Mr Credit Card. Mr Credit Card reviews credit cards and also has a blog on his site. You can subscribe to his blog here.
Firstly, I want to thank Matt for the opportunity to be a guest poster here. Today, I am going to give some pointers on choosing a reward card so you can actually make money from credit card companies.
For folks who carry a balance, looking for a card with low interest rates or a teaser balance transfer deal to lower your interest payments make sense. But for those who pay in full, it always make sense to get a credit card with rewards. Credit card companies make money from you in three ways :
- They charge an annual fee (though most do not anymore)
- They make money from each transactions from the merchant
- They make money from you if you carry a balance (interest charges
But from your perspective, you should be making money off them. The best way to do so is to actually get a rewards card.
There are several types of rewards credit cards.
- Cash Back Credit Cards
- Affinity Credit Cards like Airline and Hotels
- Rewards Credit Cards
Cash Rebates or Points? –
The first issue you have to ask yourself is what type of reward cards should you get. It really depends on whether you want to earn cash rebates or points. This really boils down to your preference. There are advantages to both.
Cash Back Credit Cards –
These cards are suitable for those who prefer to earn their rebates in the form of cash. After all, cash is king. There are many types of cash rebate cards, so you have to know how to choose one.
The most basic ones pay 1% cash rebates for every dollar that you spend on the card. While this is much better than cards that do not pay rewards at all, you can do much better.
Many cards pay more than 1% on certain categories of spending. For example, you may get cards that pay 3% on gasoline spending or travel or supermarket etc. It is these types of cash back credit cards that you should be looking at.
You also have to be looking at other things like:
Are there any caps to how much rebates you can earn a year? –
Many credit cards restrict the amount of rebates that you can earn in a year. For some, that is not an issue. But for high spenders, this is an important fine print to be aware of. Make sure you choose a card with no spending limits if you charge a lot to your card.
Is the rebate formula tiered? –
Some cards require you to reach a spending threshold before you can earn their top rebate tier. If you are a low spender, this will work against you.
How are you rebates paid? –
Though this is probably a secondary issue for most folks, it might matter to some of you. Some cards automatically credit your statements, some will deposit the rebates in your bank account or send you a check automatically when you have earned a certain amount. Some simply require you to call to redeem your rebates.
Airline Credit Cards –
For frequent fliers, airline credit cards are probably the best choice of rewards credit cards, especially if you fly just with one airline. These cards normally come with an annual fee, but allows you to earn double miles when you use the card to buy their tickets. You might also get other perks like access to their lounges, annual companion air ticket.
There are some folks who are frequent fliers but fly with many airlines. In this case, getting an airline specific frequent flier credit card does not make any sense. One alternative is to enroll in the starwood preferred guest program and get the Starwood credit card. The starwood preferred guest program allows you to transfer points that you have earned into air miles for over 30 programs. For most programs, you can transfer one point for one mile and if you transfer 20,000 points, you will even given a 5,000 miles bonus. Together, 25,000 miles is enough for a domestic round trip ticket on most airlines.
Rewards Credit Cards –
There are folks who do not fly often, but would still like to earn reward points from their credit card for an occasional free airline ticket for their vacation or to exchange them for other items. If you fall into this camp, do not despair. All the major credit card issuers have reward programs. Typically, you earn one reward point for every dollar that you spend on the card. When you have accumulated enough points, you can exchange the points for rewards. These rewards normally come in several forms :
- Travel Rewards
- Gift Cards
With most cards these days, you book your own travel items and use your points instead of paying for them. Or you could book your travel items first and then use your points to get credit for your next statement. Some programs like Citi’s ThankYou Network require that you use expedia.com to do your bookings. Others like Discover allow you to use whichever agent (online or offline) you want so you can get the best prices.
If you are not into getting free airline tickets, you can exchange points for products. Most reward program catalog have stocks of products like electronics, home furniture etc. You can also exchange reward points for gift cards.
How do you choose a reward card? –
The only way to do so is to figure out what you intend to exchange points for. Then you have the painstaking task to going to each credit card issuers website and do some reading and research.
For example, if you think you would be exchanging points for airline tickets, you have to check if the program imposes any restrictions. They could be things like having to book 21 days in advance, having to stay a Saturday night and even be subject to blackout dates. Or you might want to check if you have the flexibility of choosing your own agent to book or if you have to book through the credit cards’ own in-house agent.
If you think you will be exchanging points for merchandise, then you have to compare each reward programs’ catalog and look at the breathe of merchants and the number of points required to redeem for items. The same goes for gift cards.
For most folks, carrying a credit card is simply a matter of convenience and they do not do some proper research before they get a card. Instead for most people, the card they have is the one that they got offers from in the mail.
However, if you get your hands dirty, figure out how you spend and how you can take advantage of rewards from credit cards, you will get lots of benefits from using your card instead of just letting the credit card companies make money off you.