Credit card rewards are all the rage in the industry now. It seems like every credit card company offers some type of incentive to use their credit card over another one. Whether it is by giving customers airline frequent flyer miles, reward points, cash back, money off a new car, or some other incentive, the use of reward credit cards has skyrocketed. Consumer Reports released a study that found that approximately 85% of U.S. households with credit cards participate in at least one rewards program. They are everywhere and in every facet of our lives. You can find reward credit cards that help parents save money for their children’s college funds or credit cards that even give a portion of sales to a college’s general scholarship fund. The options seem almost limitless.
Which Credit Card Rewards Are Best?
But, which credit card rewards program is actually best? This is very subjective question. Many personal finance bloggers recommend rewards cards based on how they are compensated for the referral. But, every consumer’s situation is different. The only way to find the best reward card is to weigh your options. Will you really use the airline miles? Will you charge enough to earn enough in cash back to make the program worth your while? Is there another program out there that makes better sense for your family? A Harris Interactive study years ago found that only 41% of reward cardholders either rarely or never even bother to use their rewards that they have earned. You just need to weigh your options before you jump headlong into a new credit card simply because of the rewards that it offers.
Which Credit Card Rewards Are The Worst Deal?
Did you know that almost 75% of all frequent flyer miles are never redeemed before they expire? And, to add insult to injury, if you do try and redeem them, there are severe limitations to when you can use those reward miles. There are blackout dates, up charges, and a slew of restrictions to using those rewards. Again, the worst deal is like the best deal. It all depends on the person and the family, what they need, and their personal situation.
The Math Behind Some Rewards
Some of the best airline miles cards allow you to earn two miles per dollar on every purchase and include a sign up bonus. On one airline allows you to fly from New York to California after redeeming 12,500 airline miles. That translates into having to charging $$6,250 on your credit card to earn that many miles. If I went onto a travel website like Kayak.com today to find the same flight over the same time period for comparison’s sake, it would cost me around $319 round trip. The American Express reward program gives its customers one point for every dollar they spend on their charge card for most purchases. In order to be able to redeem a $50 gift certificate to The Cheesecake Factory restaurant, for example, would cost an account holder 5,000 points from which a customer must charge $5,000 on their American Express card to earn that amount.
Rewards programs are a good deal if used correctly. Spending money solely to earn a reward will quickly leave you broke. The people who capitalize on the system are the ones who earn the rewards by using the cards how they normally would in the first place. My wife and I use our American Express card as a way to budget, and so we use it quite a bit, racking up a large number of points. We use those reward points to pay for gifts for Christmas, birthdays, and other events by redeeming gift cards.
Hank Coleman is a writer, entrepreneur, and professional in the government sector. He holds a Bachelor’s Degree in Business Administration, a Master’s in Finance, and is currently studying for his Certified Financial Planner (CFP) credentials. Be sure to follow him on Twitter @HankColeman.
Photo Credit: paldies