Rewards Credit Cards
Rewards credit cards are traditional credit cards that offer some kind of reward or perk for using them. Two of the most popular types are airline miles credit cards and cash back credit cards. The basic idea is that every transaction you make with the card earns you points, credits, or some percentage of cash back, usually worth around 1% to 5% of the transaction.
There is a variety of different rewards cards out there, each claiming to have the best or most valuable rewards. When choosing a rewards card, the most important thing is to find a reward that you will actually use. If you hate flying, for instance, an airline miles card may not be for you.
What sorts of rewards are available with credit cards?
Along with the aforementioned airline miles cards and cash back cards, there are cards that give you points or dollars toward purchases at a specific store or the purchase of a specific automobile. There are credit cards that give you discounts at gas stations or restaurants as well as retail stores. There are even credit cards that will give you cash off the principal of your mortgage.
The reward systems can get quite complicated between miles, points, dollars, and whatever other unit the credit card company chooses to use to keep track of rewards. Once you choose the type of reward you want, you will need to do some homework to determine which card offers the best bang for your buck with that reward. For instance, you may find that a card offers three points per transaction toward a new car when others only offer two, but you may find out that the points are worth fewer dollars off the car from the three-point company.
What is the most popular type of rewards credit card?
Clearly, the most popular type of rewards card is the cash back credit card. The Discover Card was one of the first to offer cash back and they are still a favorite since they offer up to 5% cash back on some purchases. Other cards have followed suit, with American Express offering up to 5% cash back on their American Express Blue Cash card and Chase offering up to 5% cash back on their Chase Rewards card. Even though the cash back on most purchases usually between 1% to 2%, just the fact that people are getting cash back for buying something is generally enough to lure them to this type of card.
The allure of a cash back card is plain to see. Cash never expires, it has a standard exchange rate, it’s accepted everywhere, and there’s nobody in the world who doesn’t want more of it. It’s no wonder that cash back cards are popular; if anything, it’s a wonder that people go for other rewards cards at all.
What kind of fees and interest rates do rewards credit cards have?
For the most part, rewards credit cards have comparable fees and rates to standard credit cards. In terms of annual fees, some rewards cards have no fee at all while others have fees as high as $125. For rates, the rates on a rewards card can be as low as nine percent or as high as 23%, depending on credit history, prime lending rate, and other factors. Rewards cards also sometimes offer promotional rates, sometimes as low as zero percent.
Is there any downside to having a rewards credit card?
A rewards credit card carries many of the same risks as a standard credit card. You have to use it responsibly and pay the bill on time each month; otherwise, you can damage your credit rating and find yourself with more debt than you can pay. You also need to protect your credit card information and paperwork so that nobody can steal the information and rack up fraudulent charges.
There are very few concerns related specifically to rewards credit cards, but there are concerns just the same. One concern is that people may be more inclined to overspend because they can justify it in their mind by thinking that they are at least getting cash back for it.
Similarly, one of the pitfalls to avoid when using a rewards card is to start purchasing things just to get the points. In other words, do the math. If you’re spending $200 on something you really don’t need to get $5 worth of airline miles, you’re better off just spending the money on an airline ticket.
Another concern is that a particular reward may be discontinued before you can cash it in. There’s nothing more frustrating than racking up a thousand points and then not being able to use them. This may happen because the card terms change or the company that you were going to redeem the rewards with goes out of business.
It is important to remember that rewards cards are not without risks and concerns. They are however, a great way to get something back for purchases that you are going to make anyway.