How to make the most of rewards credit cards | personal financing
If you’re going to use a credit card, shouldn’t you get paid to do it? Rewards cards help you benefit from your daily spending. Here’s what you need to know to get the most rewards cards possible.
What is a rewards credit card?
Rewards cards pay you every time you use them. Many of these cards give you a percentage of every purchase with cash. Others pay you with points or miles for a specific airline, hotel chain, or general travel expenses.
Points and miles rewards are a bit more complicated compared to cash rewards. One mile or one point does not always equal an exact cash equivalent. Cards like Chase Sapphire Preferred offer Ultimate Rewards points, with each point worth 25% more than their cash counterpart when redeemed for travel through the Chase Ultimate Rewards portal.
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Whether in the form of cash or points, these rewards may seem small, but they can add up quickly. Rewards accrue in the account over time until you redeem them.
The three types of cashback cards
Fixed rate cards
Flat rate cards earn a set percentage on all transactions, typically 1% to 2%, depending on the card. It’s perfect for people who like a single, slim credit card wallet without any of the fuss. The Wells Fargo The active cash card gets you an unlimited 2% cash back bonus and a massive $200 cash bonus sign up bonus after spending $1,000 on purchases within three months. Under this no-frills spending strategy, charge everything on the card, including less obvious items like automatic payments for home security or internet and phone bills.
Bonus class cards
Rewards tier cards earn high cashback rewards – typically 5% on select categories like gas, restaurants, or grocery purchases within a certain time frame. These bonus categories generally change every three months. The card may offer 5% cashback Amazon And the targeting Purchases from October through December. The Cardmember must register to activate the bonus category either online, in-app or by contacting customer service.
All other general non-free purchases continue to earn 1% or 2% cashback without any activation, depending on the card. The explore The “it” card might be perfect for people who like to get excited about the different reward categories every quarter. To maximize rewards, use this card only for reward categories.
Tier cards offer a mix of fixed-rate and reward tier cards. They offer a few select high reward categories of 3% to 4% cash back, usually 1% on all other general purchases. Daily Blue Cash Card from American Express It offers benefits like 3% at supermarkets, gas stations, and online retail purchases, up to a maximum of $6,000 per calendar year. All other purchases earn 1%. Plus, it gives you a $200 credit on your card balance after you spend $2,000 on purchases on your new card during the first six months of membership.
Rewards can be redeemed online, in-app or by contacting customer service. Cardholders can redeem what they have earned to pay off their balance, donate to charity, book travel, receive gift cards or just get a check for cash.
How to Maximize Credit Card Rewards
To make the most of your rewards, consider owning three credit cards: one from each category above.
Before the beginning of each quarter:
- Plan to use your credit card.
- Find and sign up for the bonus category for the quarter.
- Write down the reward categories on a sticky note and keep them in your wallet.
- Maximize your money by sticking to your spending plan.
Three-month spending plan
3% in the supermarket
fixed exchange rate
2% on everything else
Are Rewards Credit Cards Right For You?
Rewards credit cards are ideal for consumers who plan to pay their credit card bills in full each month. It is not worth paying more than 20% interest to get 3% cashback. Besides, spending more than you can afford to maximize signup bonuses and bonuses is tempting but dangerous. Additionally, some of the best rewards cards may charge an annual fee. The idea is to save money by accumulating credit card rewards, not losing money by accumulating credit card debt.
Whatever your spending style or financial goals, a solid strategy is the ultimate goal during these tough times. If your needs match what you offer, rewards credit cards may be able to help you reach that goal.
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Alka Mehta, the foolish shareholder, has no financial position in any of the mentioned company. Discover Financial Services, American Express and Wells Fargo are advertising partners of The Ascent, a Motley Fool company. John Mackie, CEO of Whole Foods Market, an Amazon company, is a member of The Motley Fool’s Board of Directors. Motley Fool has and recommends positions at Amazon and Target. Motley Fool recommends finding out about financial services. Motley Fool has a disclosure policy.