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If you are like most people, you apply for credit cards that have rewards and bonus points. Unfortunately, many people don’t understand exactly how credit card points and rewards work. There are others who don’t understand exactly how they work with their particular card. Some people won’t benefit from the particular rewards program that their credit card has to offer. Before you start applying for cards simply for the rewards, there are a few questions that you should ask yourself first.
Are the Rewards Offered Cash Back Or Are They Only Redeemable For Goods or Services?
There are some credit cards who offer cash back rewards. There are others who help your earn points for travel or merchandise. If you have the option of the two, you should take the cash back. Cash back is more versatile, and it can be used on anything. If you want to redeem travel points, you can use your cash back instead. If you aren’t planning a trip, you can spend your rewards elsewhere.
What is the Cash Value Rate of the Reward?
If you want to compare rewards on different cards, you should compare the actual value of the different rewards programs. To do this, you would just need to figure out the cash value of each reward based on every dollar that you spend. Even programs that offer travel miles and merchandise have a cash conversion rate.
Are the Rewards Automatic or Do You Need to Register Periodically?
Many rewards programs pay out automatically. If you are registering for special categories such as more cash back for gas or more cash back for retail stores, you may need to register periodically. The special categories often offer the highest rewards, such as 5 percent for a limited time, while typical cash back may only offer 1 percent. If you are going to register for special categories, you should find out the specific card’s guidelines.
Are You Going to Spend More Money Just to Get the Rewards?
The average interest rate on credit card purchases is 13.49 percent. The typical reward value is about 1 percent of what you spend. If you are spending more just to earn more rewards, you could be spending too much. This could end up hurting you more than helping you in the long run.
Will Your Rewards Expire?
There are some credit card rewards with an expiration date. If you don’t redeem them before they expire, you could lose them. It is a good idea to figure out what the expiration date is. To be sure that you never lose them, try to redeem your points each time you pay your credit card bill.
Will You Actually Redeem Your Rewards?
Some people sign up for a rewards credit card because they expect to redeem their points. If you don’t cash in your points, using this type of card could be a waste. Even if your card doesn’t have an expiration date on the rewards, they could terminate their programs. This will make all of the rewards useless. If you don’t think that you will be diligent about redeeming your rewards, you should consider choosing a card with no rewards.
How Do the Rewards Compare With the Interest Rates?
As mentioned above, you should compare the rewards that different cards are offering. It is just as important to compare interest rates. If you forget this very important detail, you could end up spending hundreds more on interest rates each month. You don’t want to choose a card solely on the rewards. The interest rate is very important when choosing the right card.
How Does the Interest Rate on a Rewards Card Compare to a Non-Rewards Card?
If you are looking into credit cards, you should compare the interest rates of non-rewards cards to rewards cards. In most cases, the interest rate on rewards cards are higher, however, you should find out how much higher the rates are. If there is a big difference between the two, the rewards may not be with the cost.
Are You Planning To Carry a High Credit Card Balance?
If you are planning to carry a high credit card balance at all times, a rewards card may not be the best option for you. The higher the balance, the more interest you will pay. This will definitely outweigh the benefits of the rewards. If you don’t plan to carry a very high balance, you really won’t need to worry about paying a little more in interest rates. The rewards will make the small increase worth it.
What is the Annual Fee Associated With the Card?
Some credit card companies would like you to believe that you will not be able to find a no-fee rewards card. This is not true. There are some credit card companies who offer rewards cards with no annual fee. These are the cards that you want to look for. If you choose a cash back card with an annual fee, the cash back that you will receive would simply go back to the credit card company for your annual fee. If you actually want to benefit from your rewards, you need to look for no-fee cards.
Bonus Tip:
If you want to maximize your earnings, you should use a strategic approach by using them at different merchants. For example, if you want to carry three credit cards, you should apply for three with the rewards that you need. You can choose one that offers cash back, one that offers rewards at gas stations, and one that offers rewards at restaurants. This will help you get all of the extras that you need. You can choose your rewards based on your needs and your lifestyle. There is no need to settle with just one reward for all of your cards.
If you are going to apply for credit cards with rewards programs, you should first do your research on the rewards, the guidelines, and the interest rates. You should also determine what rewards would best suit you. If you ask yourself the right questions before applying, you can be sure to make the right choice.
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