A reward credit card allows you to turn everyday purchases into various things for yourself or your family. When used wisely, they can be highly beneficial. However, if you do not exercise caution when using a reward credit card, the reward could cost more in the long term. The better you understand credit card reward programs, the better positioned you will be to take advantage of these offerings without becoming the one being taken advantage of by credit card companies.

Types of Credit Card Rewards

The most important thing when it comes to credit card rewards is to choose the type of credit card rewards program that suits your needs best. Quite a few options are available, and these are among the most common types of credit card reward programs used today.

Cash-Back

As the name implies, cash-back cards offer cash back on your purchases. Different types of purchases may offer additional cash-back rewards. For instance, gas and grocery purchases may offer two percent cash back, while all other purchases offer only one percent. Some cards offer different cash-back bonus opportunities each month for double rewards. The idea is that you earn cash back and either receive the payments directly on a scheduled timeline, such as once a month, or you must submit for a withdrawal whenever you want. In these cases, it works like a savings plan that you can utilize on your terms.

Points

Point programs offer flexibility over cash-back programs and miles or travel programs. You earn points with your transactions that you can use for various things. Different credit cards allow the conversion of points into different things; below are some of the standard options available:

• Gift cards
• Merchandise
• Travel
• Cash deposits
• Statement credits
• Charitable donations

Many prefer these reward credit cards because they offer greater diversity in utilizing their rewards.

Miles/Travel

Many hotel and airline credit cards offer reward programs for people to turn business travel into free travel. It’s a boon for the sponsoring organization as it ensures customer loyalty when booking hotels or scheduling flights and allows them to offer rewards of little additional cost.

How Credit Card Reward Programs Work

So, how do these programs work? As you make everyday purchases, you earn cash back, points, or miles for each purchase. Credit card companies assign higher value rewards to certain purchases, while they exclude others for various reasons. The points are redeemed as rewards when you’ve built enough points to achieve your goals. You should also note that it is possible to lose your rewards if you close your account or fall behind in your payments. Always read the fine print to ensure that points, miles, or other rewards do not expire.

For some individuals, reward programs work out great. For most consumers, though, pursuing the reward costs more, in terms of interest, penalties, and fees, than purchasing the reward outright would cost. Having a plan when choosing a credit card program and utilizing a credit card to earn those rewards is crucial.

Choosing the Right Credit Card Reward Programs

Not all credit card reward programs are created equal. It’s essential to understand the finer details when choosing a credit card reward program to find one structured for your lifestyle and spending habits. You want to pay attention to these things when choosing a reward credit card.

• What types of rewards does the card offer? You want one that offers rewards you are likely to use.
• How do you, as a consumer, accrue points, miles, and rewards on the card? You don’t want to have to jump through hoops, and you don’t want to have to spend in ways that do not mesh with your everyday lifestyle. Choose cards that reward the way you typically spend best.
• What type of introductory bonuses does the card offer? More importantly, will you earn that bonus during the introductory period?
• Does the card have annual fees? Some annual fees are hefty and may cost you more than you will likely earn in a year. Keep this in mind when choosing.
• What is the annual percentage rate for the card? The lower the APR, the better it is for you to take advantage of, especially if you have a card offering an attractive introductory rewards program and a lower interest rate during that period. The interest rate alone can destroy any potential value of the rewards program unless you pay the total balance each month.
• Does the credit card have caps on its rewards? That is often common with cash-back reward cards. Additionally, many travel reward programs have blackout dates and travel restrictions.

Understanding these fundamental issues can help you choose a credit card reward program that will match your lifestyle and spending habits best. More importantly, it will help you maximize your reward values.

Maximizing the Credit Card Rewards

Reward programs work well for some consumers. But they also work well for credit card companies. They make a lot of money, and that is why so many credit card companies are willing to offer the rewards. Savvy consumers can work the system so that credit card rewards reward you more than credit card companies. You have to approach the reward program like a mission, and here’s what you need to do.

• Avoid overspending to earn rewards. Choose a reward program that works with how you typically spend money. If you eat out, travel, or buy a lot of groceries or gas, choose a reward card that offers additional benefits.
• Consolidate your spending until you reach your goal. That is especially true if you’re trying to take advantage of an attractive introductory offer.
• Pay off your balance every month. That means you won’t have interest fees cutting into the actual value of your rewards.

Finding a reward credit card program that works well for how you spend is possible. You must approach the process strategically to make it happen.