Credit Card Rewards: Are They Worth Chasing?
Credit card companies are constantly looking for ways to bring in new business and new customers; One way they make opening up a new account sound appealing is with rewards. Rewards programs come in all shapes and sizes, and it’s up to the consumer to decide if they make opening an account a worthwhile decision.
There are considerations that should be taken when you’re thinking about opening up a new rewards program credit card. In this article, we’ll discuss what credit card rewards are and how to determine if they are worth it for your financial situation.
What Credit Card Rewards Programs Are
Rewards programs were developed by credit card companies and financial institutions in order to get more customers to sign up for accounts with the promise of being able to earn rewards. Different companies and cards offer different rewards; They can vary, but usually are within one of the following categories:
- Cash back rewards. With this type of reward, credit card companies will allow you to build up cash credits dependent on how much you spend on your cards.
- Hotel and car rental points. Credit card holders in these rewards programs can build up points to use towards discounts on car rental and hotel expenses.
- Miles rewards. One of the most popular types of rewards programs is airline miles. With this program, cardholders can earn mile points to go towards airline ticket purchase discounts.
- Gas card rewards. With this type of credit card, holders can build up discount points towards purchases of gas.
Credit card companies like to give out these cards to qualified applicants because it helps encourage more spending; They hope that the majority of spenders won’t pay off their purchases before APR’s accrued.
What to Consider
If you’ve received a credit card rewards offer, or you’re considering signing up for a new account, there are points you should consider to determine if it’s the right step for you to take. Consider these points:
- Do you tend to pay your credit card balances off by the end of the month?
Credit card rewards programs should be an added perk for responsible credit card holders; Unfortunately, if you spend regularly on credit cards, but don’t pay off your balances each month, this credit card is probably not for you. This is because the amount you’ll end up paying in APR fees will probably be higher than the amount of rewards you actually earn. - Are there any fees associated with the credit card account?
Monthly or annual fees associated with the card are also something that could negate the reason for earning rewards. When making your decision, compare how much you’ll pay in fees to how much you expect to earn in rewards with your spending habit averages. - Are the rewards offered ones that you’ll use?
If you don’t plan to fly anywhere within the next couple of years, a miles rewards card is probably not for you; The same goes for gas cards if you do little driving. Consider the rewards being offered in comparison with your lifestyle before signing up.
When Not to Sign Up for a Rewards Card
As with any credit card, you should carefully consider your financial situation before signing up for a new account. Are you planning on making a big financial purchase any time soon? Probably not the right time to open a new card. Does the card have a high APR? It probably negates the value of the rewards. How about the fees? If they are high, it’s probably best to stay away.
How to Maximize the Benefits of a Rewards Credit Card
If you’ve decided to sign up for a new account, it’s important to maximize its usage as much as possible. Be sure to create a spending budget for your card and pay it off each month to avoid paying too much in APR fees. Making sure you pay your card on time each month consistently should also help open up a higher credit line after some time, which can increase your credit score.