Once upon a time Credit Cards were a simple thing, you purchased goods or services and paid for them when the balance was due. When Discover introduced it’s cash-back offer it opened up a can of worms that can be very confusing for any credit card user.
Airlines jumped on the band wagon with credit card providers and Frequent Flier Miles were introduced, restaurants and hotel’s also got into the game and now there is almost no limit to where you can use your accumulated points. Naturally it is good to see some of your hard earned dollars coming back to you, but how do you know if the Rewards Credit Card you have is the best for your situation?
The first thing to realise is that if you carry a monthly balance on your credit card, a Rewards Card is not a good idea. Any benefits that you receive from the rewards program is likely to be overtaken by the amount of interest that you pay on the outstanding amount and a better solution would be to go with the lowest rate card you can find so that you can pay off your debt as quickly as you can.
Ok, with that out of the way let’s look at the “credentials” that you should consider before deciding on a Rewards Credit Card.
- Know how the rewards you receive are valued. Getting the best value for your money spent is important. For example, typically the Frequent Flyer Miles programs are considered to be the standard of the rewards programs and usually offer between 1% and 2% rebate on dollars spent. If the rewards you receive total less than 1% in real dollar terms you may want to consider looking around for a better deal.
- Be aware of any limits that are placed on your Rewards earnings. Some programs will have a limit to the rebate that you can apply to certain items and there may also be a expiry date on your rewards points earned. If you are likely to take some time before you can “cash in” your points be sure that you have other options if there is an expiry date.
- Matching the card to your spending habits is important. For example, if you use your credit card all the time and are likely to accumulate many rewards points you have to be award of any limitations you face. As a small time credit card user you also have to balance up whether or not the fees associated with the card will exceed the likely hood of you redeeming your points in any given time.
- Consider the flexibility you need when it comes to redeeming your points. For example, if Frequent Flyer points are what you are after do you want these points to be accepted by one airline or a number of airlines? Is a expiry date on your Rewards Points likely to be an issue? Choose the way in which your Reward Points can be redeemed very carefully, there is no joy in having a stack of points and not being able to use them!
And finally, as with any credit product it is absolutely vital that you don’t let the “magic” of racking up rewards points lead you into a situation where you get yourself in trouble. It is essential that you protect your credit score at all times.