The first of the month can be an anxious time for many. While a new month brings the opportunity for change, such as starting a new fitness regime or a new project, it also brings with it the deadline for most of our bills. As the months draw to a close, most people begin to check their bank balances, investigate their monthly statements for errors, and whisper a prayer that they’ll be able to afford the end balance.
But paying your bills doesn’t always have to be a case of giving without taking. Indeed, for credit card holders, the more you owe, the more opportunity you may have to earn back something for yourself. In the following, we’ll discuss the way that credit card rewards points work, some examples of rewards programs, and what you need to think about before you commit yourself to a rewards program.
What are Credit Card Rewards?
Credit Card Rewards refers to programs in which you earn certain rewards for charging your purchases to your credit card. There are many options for credit cards that match your lifestyle, and one of the factors you should consider, aside from interest rates and credit limits, are any rewards programs offered on your card.
As with anything else involving a credit card, you need to be careful how you use it. While rewards programs are a great option to get your debt working for you, as we’ll discuss later, you still need to bear in mind how much of your total credit limit you’ve used. Using more than 30% of your available credit makes creditors and lenders nervous, and can impact your credit score, as well as your ability to qualify for other forms of credit. Don’t be tempted to spend more money than you can afford just to get a bonus from your card company.
A final, but critical, note about rewards programs: you must read the fine print. There are numerous stipulations for using a rewards program, and sometimes, they are anything but simple to grasp. An example might be having to spend $2,000 in the year before you even begin earning your rewards, or that you may only have a set amount of time to use your rewards before you forfeit them. Make sure you understand exactly what you’re getting into; you could end up in more debt than your rewards are worth.
Types of Rewards
There are numerous credit card rewards programs, each with their own sets of stipulations and conditions to receive your benefits, but in general, there are three main types:
Cash Reward programs are credit cards that offer you cash incentives to use their card,
and are the most straightforward type of rewards programs. Certain programs give you cash back in the form of a check or deposit into your account when you have spent enough on your credit card.
Alternately, the program may offer you credit on your card account, but be cautious, as this may not automatically go towards paying off your balance. Another option for your payout may be in the form of a gift card to a business that partners with your card issuing agency.
The obvious advantage to having a cash rewards card is that you can use the money you earn to buy something in lieu of cash or credit (saving both your money and credit limit) or use it to pay off other debts you’ve accumulated.
A final note with a cash rewards card is that most have a limit on the amount of cash, or credit, that you’ll receive back at once, and once you hit that limit, you won’t earn anymore until you’ve reset.
Point Programs are a system in which you earn points per a set dollar amount on your card. For example: your program might reward you one point for every $5 spent. Points usually accumulate over the course of the year, and you’re eligible to use them on your retailer’s online shopping mall, or redeem them for gift cards.
This can lead huge savings for you, as long as you buy what you normally would through your card’s offered vendors, instead of going through a regular chain store. Many vendors will offer you anywhere from 15 to 20% off the regular price if you use a gift card. If you’re a frequent online shopper, points programs can be a great program for you to use.
Like cash rewards, there may be a limit on how many points you can accumulate or a time, and many points programs require you to redeem your points before the year is out, or you lose them. A final thing to consider when selecting a points program is if it is a tiered or flat rewards system. Flat rewards offer the same amount of points for every dollar you spend, whereas tiered cards will offer you more or less points depending on what you buy.
Miles rewards, as the name implies, offer free airfare travel miles when you use your credit card. The number of miles you earn, and what they can be spent on, vary greatly both by the type of credit program you have, and how different airliners implement their frequent flyer programs.
If you travel a lot, either for work or recreation, a miles rewards program can potentially save you hundreds or even thousands of dollars on tickets, that you can reinvest in either a vacation for your family, or other obligations you have.
Is it Right for Me?
In order to qualify for the best rewards programs, you’re going to have to have a great credit score. While this applicable for most credit cards regardless of rewards programs, lenders and creditors will only offer great rewards to borrowers they know they can trust; a high credit score is how you validate that you are a reliable borrower.
If your credit score isn’t great to begin with, then rewards programs probably shouldn’t be a priority right now. Focus on fixing your credit first. That way, you’ll not only qualify for better rewards options, but you’ll also be in a better position to manage your rewards program obligations. Since rewards cards usually entail higher spending to earn rewards, higher interest rates, and, in many cases, expensive annual renewal fees, if you’re not in a position to afford them, you’ll end up indebted for far more than you were hoping to save.
If you need money right now, either to pay off your bills or improve your credit score, you should consider selling off personal possessions you don’t need or taking out a personal loan, rather than getting a new credit card.
The More You Spend…
Rewards programs can be a great option for you to save money and get more out of your credit card. If you have a great credit score, understand the terms of using your card, and spend responsibly, you can pay off your car, or take that vacation you’ve been dreaming about, way sooner than you planned.