Rewards credit cards are one of the most popular options for consumers in the United States who want to optimize their personal finances.
The variety of benefits is wide, including cashback and airline miles.
However, understanding how these cards work and how to maximize their benefits can be a challenge for those who are not familiar with their nuances.
What Are Rewards Credit Cards?
Rewards credit cards are those that offer additional benefits to their cardholders through cash or miles rewards, accumulated based on the amount spent on the card.
Instead of just making a purchase, consumers have the opportunity to earn a percentage of the amount spent back in the form of credit or specific rewards, such as airline miles, which can be used for travel.
These cards are particularly popular among those who want to accumulate rewards in a simple and effective way.
Rewards vary depending on the type of card and spending category, with more advantageous options for those who tend to spend in categories like groceries, gasoline, and travel.
How Do Rewards Credit Cards Work?
Rewards credit cards work in a simple yet effective way.
With each purchase made on the card, the user earns a percentage of the amount spent as a reward, which can be converted into cashback or miles, depending on the card.
How Does Cashback Work?
Cashback is a popular form of reward where a percentage of the amount spent is returned to the cardholder.
For example, if you spend $100 on a card that offers 2% cashback, you will receive $2 back.
This money can be used to reduce the card balance, deposited directly into your bank account, or used for new purchases.
Cards can branch into different percentages for each category of spending, especially for everyday items like groceries, transportation, and gasoline.
How Do Airline Miles Work?
Rewards credit cards with airline miles are especially attractive to frequent travelers.
Instead of offering cashback, these cards give miles that can be exchanged for airline tickets, upgrades, or other travel benefits.
For every dollar spent, the cardholder earns a certain number of miles, which, over time, can be redeemed for a free or discounted trip.
Airline miles cards are generally linked to specific airline loyalty programs. Many companies also allow exchanges between different partner programs to better serve their customers.
How to Maximize the Benefits?
To get the most out of a rewards credit card, it’s important to understand how it works and take strategic actions. Here are some tips:
Understand Your Spending Categories
Cards can offer higher cashback or miles rewards in specific spending categories. If you spend more on groceries or dining out, look for a card that offers perks in those areas.
This will help you increase your rewards without increasing your budget.
Pay the Full Balance
These types of cards can have high-interest rates. To prevent interest from nullifying the benefits of the rewards, it’s essential to pay the full balance of the card every month.
If you carry a balance, the accumulated interest can exceed the rewards you’ve earned.
Take Advantage of Welcome Offers
Cards often offer welcome packages, both in points and cash, boosting your rewards.
Keep an Eye on Special Offers
Some cards offer special deals or extra bonuses in certain categories or during seasonal promotions.
Keep an eye on cashback or extra miles campaigns to take full advantage of these opportunities.
Consider Fees and Annual Fees
Many rewards credit cards charge annual fees. Be sure that the reward benefits you will receive outweigh the cost of this fee.
Cards with annual fees generally offer better benefits, such as extra miles or access to airport VIP lounges, but it’s important to do the math to see if it’s worth it.
Which Card to Choose?
Choosing the ideal rewards credit card depends on your lifestyle and financial goals. Research the various offers available and compare interest rates, annual fees, and reward categories.
It is essential to choose a card that aligns with your spending habits, as this will ensure you make the most of the rewards offered.