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[Tuesday, October 18, 2005]
Against Conventional Wisdom
With credit card rewards programs, it does pay to keep all your eggs in one basket
People often say you shouldn't put all your eggs in one basket. But keeping your eggs in one basket can actually be a good thing - if you want to earn the most cash rebates and points from your rewards credit card.
Keeping all your purchases and points in one place can lead to faster and greater rewards. And this, of course, can help you get the most overall value from your credit card.
How Rewards Programs Work
Rewards and cash-back credit cards let you earn cash, points, discounts and other incentives simply for using the card. That's why they're increasingly becoming a popular option with consumers. In fact, rewards cards made up about one third of the cards analyzed in the Credit Card Survey 2004 by San Francisco's Consumer Action.
Banks have partnered with hundreds of major companies - including airlines, hotels and retailers - to offer points you can exchange for their products and services. Credit card reward programs give you access to some of the best deals that major companies have to offer. Overall, these programs can help you earn a generous cash reward, as well as opportunities to get free merchandise, other cash bonuses and exceptional discounts and bargains.
Ways to Earn and Spend Rewards
Cash-back and rewards credit card programs are very similar and get lumped together by most banks and credit card companies. However, there are important differences in "how" you earn and what you can do with your earnings.
Cash-back rewards programs, of course, rebate part of the qualified charges accumulated on your credit card. Some types of reward programs pay points for your purchases. Other rewards credit cards have very specific currency, such as those issued by banks in partnership with gasoline retailers. Points earned on these types of cards are accumulated and applied as a credit to future gasoline purchases.
Choosing Programs Wisely
The best way to find the most suitable rewards credit card program for your needs is to examine your spending habits. If you don't pay off your balance each month, a reward credit card may not make sense as they tend to come with higher interest rates, which can negate the value of the rewards card. As such, shop around for the rewards program with the lowest rate available if you intend to carry a monthly balance. However, if you pay off your balance in full each month - and merely use a credit card as a payment tool - a reward credit card can be a great way to get paid for spending.
Next, consider what form of "currency" you want to earn for your purchases. Rewards credit cards commonly pay one point for every dollar you spend on the card. But how you redeem those points will differ among programs.
Many cards offer a shopping portal where you can redeem your points for merchandise, airline tickets or even cash. Some cards give you automatic gift certificates good for items on their site, such as the Bank One Amazon Credit Card, where 2,500 points equal a $25 gift certificate.
Getting the Most from Your Rewards Program
The key to finding the perfect card is to consider where you normally shop and determine which rewards credit card will pay you the most points for your spending patterns. While many offers might sound good, it's best to restrict your purchases to just one card (two at the most) that offers products and services you can really use. This will make it easier to earn rewards faster while racking up more cash rebates and points.
Then to further maximize your rewards, simply use your credit card for anything you would normally pay for by cash, check or debit card - utilities, food, clothes and entertainment. Just be sure to avoid unnecessary interest charges by paying off your credit card balance in full each month.
To earn substantial rewards, you'll have to spend quite a bit on your card. For example, many airlines require you to accumulate 25,000 points before you earn a free ticket. And when dealing with an airline miles program, expect restrictions. There are limitations on the travel dates, time periods for use, available routes and the number of miles you can earn annually. Also, once you've transferred miles or points to a particular airline program, you generally can't take them back without paying a fee. So it's best to not transfer points until you're actually ready to buy a ticket.
Ultimately, the type of rewards credit card program that's best for you will depend on how you shop and whether you'd rather earn cash back or points to spend on merchandise.
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Quick Tools for Comparing Credit Card Features |
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Comparing credit card features can be tedious work - unless you have a handy tool to do the research for you. Here are a few online tools that can make the job easier:
• Credit-Land - Loaded with tools enabling you to search by credit card type and compare terms, including the introductory and ongoing annual percentage rate, the intro period, annual fee and credit limit.
• MSN Money Analyzer - Lets you research card categories, such as cash back, airline miles, travel points, overall value or even car purchase credits.
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