A rewards credit card is specifically targeted at people who want a bonus in exchange for using the card; so the more you purchase, the more rewards you earn. Common rewards include:
Cash dividends. With these cards, for every dollar you spend, you typically earn a point. Once you reach a certain threshold, you can exchange those points for a cash reward. Most cards offer cash dividends of 1% or 2%.
Airline miles. Instead of points, airline rewards offer mileage for every dollar you spend. Those miles can then be redeemed for free airline tickets and other perks.
Hotel points. Like cash dividend cards, for every dollar you spend, you earn points that can be exchanged for free stays at inns and vacation resorts.
Cash Rebates. For these cards, rebate percentages often vary, depending on what you buy. For example, you might earn 2% for restaurant meals, and 1% on everything else.
Although rewards cards have their advantages, you should avoid getting one if:
- You have trouble controlling your spending
- You lack the discipline required to pay off your credit card bill in full on a monthly basis. This is because rewards cards often come with high variable interest rates. As a result, any rewards your earn will tend to be offset by your borrowing costs.
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I love my United Airlines frequent flyer miles program! The best value for the points / miles appears to be using them for international flights. If I got money back with a credit card I wouldn’t notice it. But when I fly Polaris round trip to Germany for $100. using miles I feel like a star! The down side is the $95. a year card fee but in exchange United gives me 2 lounge passes which are useful if you fly domestically and if I can’t use them I give the passes to friends who find the novelty of the lounges very enjoyable. I would NEVER suggest selling these for $20./$25 each but people do as buying a lounge pass from United costs $55. You also get to bring a suitcase free on every flight. If you PAY YOUR BALANCE IN FULL EVERY MONTH there is no other downside. You save money with a credit card by not having to send a check in an envelope to pay bills. If you set up recurring bill pay you never get dinged with late fees. To me the miles are “found money”. If I pay $165. a month for the phone internet tv bundle by check or bank draw, that’s it. If I pay with my credit card automatically at the end of the year I have 1,980 miles towards a free flight. It mounts up quickly. Combining my United Credit card and United Frequent Flyer Rewards Account has given me numerous free flights over the years. ALWAYS PAY THE BALANCE ON YOUR CARD IN FULL EACH MONTH AND YOU WILL BE WAY AHEAD FINANCIALLY IF YOU LIKE TO FLY.
Len,
Thanks for sharing your thoughts on the various rewards credit cards.
I used to gravitate toward the travel rewards programs, but since COVID, I haven’t had the chance to utilize them…hopefully again some time soon.
The cash rewards programs are my second favorite, and I see that I can truly save quite a chunk of money depending on the cash rewards programs you use.
Cheers!