With some regularity, pundits in the mainstream press will declare that credit card rewards are not worth it. They will cite the worst case scenarios to make their point. For example, some will say that people spend more to earn rewards while others pay interest and fees that are worth more than what is received.
Of course, those who spend more and pay interest should not be using reward credit cards. In fact, anyone who has debt should be looking to pay it off first rather than earn any rewards. But just because reward cards are not for everyone, it doesn’t mean that they can’t be very beneficial to millions of responsible users.
On the other hand, some critics will attack loyalty programs such as the airline frequent flier programs. Certainly, this line of criticism is valid in many instances. Most airlines are doing a terrible job of offering award seats to passengers at the lowest mileage levels. And since airline mileage credit cards frequently base their advertisements of a “free flight”on these lowest mileage awards, cardholders are right to feel deceived when those low-mileage awards are nearly impossible to find.
How to come out ahead with reward credit cards
First, obtain a large sign up bonus. For example, the Chase Sapphire Preferred® offers 40,000 Ultimate Rewards points to new applicants who spend $3,000 within three months of opening a new account. This is worth 40,000 miles or points with any of eight different airline or hotel programs, or Amtrak Guest Rewards. Or, cardholders can can use the points to book $500 worth of travel through Chase’s Ultimate Rewards web site.
Next, make sure you understand the best uses for points and miles earned in these loyalty programs. Points and miles are most valuable when used for last minute airline tickets or international awards in business or first class. When used this way, points and miles can be worth five cents each or more.
Also, set realistic expectations. The most competitive cash back cards will offer 1-2% back on all purchases, with bonus cash back of up to 6% on select categories of purchases. Therefore, it is not difficult for cardholders to realize an average of 2% cash back or more. In an era of savings accounts that offer less than 1% annual returns, credit card users should be thrilled to receive 2% cash back, not disappointed.
And finally, use common sense. Don’t use a reward card if you carry a balance or are in debt. Focus on a low interest rate card or find a promotional financing offer instead.
By understanding the benefits and limitations of reward credit cards, cardholders can disregard the naysayers and use these products in the most sensible way.