10 tips to earn the most from your rewards credit card
Not making the best use of your rewards credit card? You're leaving money on the table. Here's how to play your cards right.
Six in 10 Americans don't comparison shop for credit cards, according to the Financial Industry Regulatory Authority. If you're one of them, you could be missing out on free money.
That's because the right plastic combined with the right strategy could earn you free flights, hotel stays and other goodies.
Leverage your card use and you can take advantage of some nice perks. Money Talks News founder Stacy Johnson earns points with the American Express Starwood Preferred Guest Card, redeemable for free or discounted rooms at Starwood hotels (W, Sheraton, Westin, Four Points, St. Regis, to name a few) as well as flights on many major airlines.
Whether you love to travel or prefer cash back, there's a rewards card for everyone -- well, almost everyone.
Who shouldn't use a rewards card
There's no such thing as a free lunch. Banks offer rewards to entice you to use plastic to pay for purchases. If they weren't making more than they spend on rewards, they wouldn’t be offering them.
How do they recoup their costs? From cardholders who pay interest.
In addition to annual fees, most rewards cards have high interest rates -- high enough overall to more than offset the cost of rewards doled out by the issuer. So the only way to beat the system is to not be one of those interest payers.
In short, rewards cards are only for those who pay their entire balance monthly. If you're carrying a balance on your credit cards and paying interest, you should be shopping for cards with low interest rates, not rewards.
But if you're not paying interest, you should definitely be looking for perks when you pull out the plastic. Here are 10 tips to get the most out of a rewards card:
1. Decide what you want
Stacy Johnson uses reward points for free hotel rooms in a city with notoriously expensive lodging -- New York. In exchange for $10,000 spent on his AmEx Starwood Preferred card, he gets a free $350 hotel room.
Note: This works well for him for two reasons. First, he charges enough on his card to accumulate that level of points (he uses it to pay a lot of the expenses for Money Talks News). He also travels to expensive places like New York often. A card that offers travel perks makes no sense if you don’t travel, nor will it do much for you if you don't charge much on it.
But if you do, there is no shortage of rewards cards. Cash back, hotel points, donations to charity, airline miles, college cash: Think about where you'll get the biggest bang for your reward buck.
2. Shop for cards like you shop for clothes
Would you wear random clothes a clothing store sent you in the mail? That's what a lot of people do with credit cards. They get a solicitation in the mail saying they've been preapproved for a card, then sign up.
You're (hopefully) not going to have a closet full of credit cards, just a few. So choose carefully. The Internet makes shopping easy. Read a few reviews, check out a card search engine, talk to a few friends. Then pick your plastic.
3. Look for signup bonuses
Issuers use bonus points to attract new customers, so keep your eye out for outstanding offers. Websites that review cards, like ours, will often alert you to the best deals.
So don't agree to sign up for a card in exchange for a free beach towel at the airport or a free T-shirt near campus. Your signature is worth more than that. When Stacy got his AmEx card, he was awarded 50,000 points after spending the required amount. That's enough for five nights at a New York hotel, a perk worth more than $1,000.
4. Look for more bonuses
You can rack up points with bonus offers. Some cards offer double or triple points on gas, groceries or airline tickets. Some will have times of the year when you can earn more.
Others offer deals for using your card at certain places or on certain dates, like the $25 statement credit for spending $25 that American Express has been offering on Small Business Saturday.
5. Use your card often
Spend more and earn more. Use your rewards card to pay for as many things as you can, especially everyday things like gas, groceries and utility bills. But remember the rewards card prime directive: Pay off your balance every month so that you never pay interest.
6. Know the value of your points
Let’s say you trade 50,000 miles for an international plane ticket that would normally cost $1,500. Your points have a "cash value" of 3 cents each. At 10,000 points, a $350 hotel room equals 3.5 cents per point.
But 50,000 points could also be traded for a $150 gift card. Then the point value is 0.3 cents.
Points should always be worth at least a penny each, but the more you can leverage them, the better.
7. Know the rules
Stay on top of expiration dates, as well as how you can earn points and how you can use them. There may be spending minimums or limits. Some cash-back programs, for example, require you to sign up again periodically or require you to sign up for special perks, like triple miles for gas purchases.
You could also lose points if you miss card payments or your account has no activity for a while. Don’t be caught by surprise.
8. Redeem regularly
Use your points periodically so you don't risk forgetting about them or losing them for nonuse. More importantly, many reward programs can be changed without notice or discontinued, and companies go out of business or get sold all the time.
Don't treat your reward points like a retirement account. Earn them, then burn them.
9. Audit your cards
Today's winner could turn into tomorrow's loser. Check your cards periodically and see if you're still getting the most possible rewards for your spending. As we suggested above, check out reviews now and then and see if anything new and exciting is available.
Don't feel as if you’re getting enough from your card? Use your rewards and shop for a new one. But if you close your old account, do it correctly.
10. Use your card wisely
Remember, a credit card with rewards is still a credit card. Don't overspend just to get points, and never max out your card. That would be detrimental to your credit scores.
What's your best rewards card strategy?
More on Money Talks News:
That's true for the overall average, but it can be a free lunch if you do three things:
1) get a no-annual fee cash-back card - there are plenty out there in most flavors (Visa, Mastercard, Discover Card).
2) pay your entire statement balance off each month so you don't pay interest.
3) check your balance at least a couple days per week to replace the braking effect of taking cash out of your wallet. Taking a shopping list with you also helps keep you from spending more than you would if you were paying in cash.
I buy a lot from Amazon.com so my primary card is an Amazon Visa which gives 3% cash-back at Amazon, 2% at drugstores, restaurants, and stationary stores, and 1% everywhere else.
My Mastercard provides travel insurance.
My Discover Card offers 5% off on rotating items every three months (gasoline, restaurants, etc.).
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