Using cash as much as possible is definitely the way to go. And, making sure that you don’t spend more than you have budgeted is key to financial peace of mind.
But, there are times when using a credit card is a good idea. A credit card can help you build credit, as we discussed in this article. If you travel, especially to foreign destinations, using your credit card is much better than carrying around a lot of cash.
And there are times when you need to pay for something, and you simply don’t have the money on hand. Medical procedures that are not covered by your insurance is one example. However, we recommend that you apply for a P2P medical loan if you find yourself in this situation.
A BIG note of caution here, though.
Using your rewards credit card or any other credit card benefits you ONLY if you pay the balance in full, or pay more than the minimum payment, or pay the bill on time.
Rewards Credit Cards Are Popular
According to an Experian survey, 45% of American consumers when applying for a new credit card, want one with rewards. Does this mean that everyone should get one? Not necessarily.
If you:
- have a good credit score,
- travel frequently,
- routinely purchase products such as groceries,
- like to dine out and/or frequent entertainment centers
then a rewards credit card is good for you.
If your credit score is low and you typically carry a balance, then the interest rates and penalties will far outweigh any rewards you might earn.
The first step, before joining the rewards credit card revolution is to improve your credit score. Here are some tips to help you do that.
Why do Rewards Credit Cards Exist?
In addition to the potential benefits for you, there is a huge reward for credit card companies. Their whole goal is to get you to use THEIR credit card for all your purchases. Therefore, there is pretty stiff competition for your attention.
What Kinds of Rewards Can You Get?
Travel Rewards Credit Cards
As the name implies, you get rewards toward travel every time you use your card. Typically, credit card companies award you with one or two miles for every dollar you charge to the card.
Travel rewards credit cards are great if you travel frequently. Once you have accumulated enough miles, you can take a vacation to your favorite destination. If you travel a lot, you can take the whole family for free!
Cash Back Credit Cards
Cash-back means you get a credit on your account, usually given at the end of the year. The amount is proportional to how much you charge to your credit card. Most companies give 1% but some newer cards are offering 1.5% to make themselves more competitive. If you have excellent credit, you can find some cash back credit cards that give rebates of as much as 2%.
Bonus Rewards Credit Cards
Bonus rewards credit cards require more of your attention. Many credit card companies offer bonuses on certain purchases for limited times or during certain seasons. The amount of the bonus is updated frequently. A bonus period could change every 90 days.
Some credit card companies may double or triple the usual reward when you make a purchase from certain airline carriers or retailers.
To reap the most from bonus rewards, you need to be sure to read the statement you receive each month or check out the latest news on the credit card company website. If you don’t have time for this, then you will want to sign up for SMS alerts, web-calendar notifications or special smartphone apps created by your credit card carrier.
Points Rewards Credit Cards
Points work similar to cash-back rewards, but with a few caveats. Points tend to expire, but you get them in real time. You don’t have to wait until the end of the year. Credit card carriers require that you use your points at affiliated retailers, entertainment venues or for certain subscriptions.
Which Rewards Credit Card Should You Choose?
It all depends upon your lifestyle.
- Do you pay your balance in full?
- Do you have a good credit score?
- Do you travel frequently?
- Do you prefer a larger cash-back that you can use at the end of the year or prefer smaller cash-back rewards that you can use more frequently?
How to Get the Most Out of Your Rewards Credit Cards
- This is pretty easy—use them. For the optimum in cash-back rewards, for instance, use your credit card to pay all your monthly bills, such as cellphone and utility bills, groceries, gas, and entertainment.
- Link your rewards credit card to your favorite online retailers.
- Be sure to read the fine print carefully. If your carrier charges you a fee for certain expenses, then you need to calculate if it is worth it to use your card. Will you get more back in rewards than you will pay in the special fee?
- Pay attention to the emails and smartphone messages you receive from your credit card company.
What are the Best Rewards Credit Cards?
Keeping in mind all of the above, here is a great resource to help you narrow down the options.
Bottom Line
Rewards credit cards can be great. You can save money. BUT, it is still a credit card, not free cash!
If credit card discipline is something you are still working on, then skip the rewards credit card for now and focus on your financial management strategy.
