The Pros and Cons of Rewards Credit Card Offers

Nowadays there are many rewards credit card offers by credit card companies in order to attract new customers. These types of credit cards offer cash back and points that can be exchanged for things such as airmiles, hotel stays and merchandise. These cards may look appealing to you with what you can earn by using them but they may not always be the best option for you.

Basically a rewards credit card is a regular credit card but rewards you for using the card. When you use the credit card you can earn points whenever you spend on the card. The amount of points you earn will depend on the amount you spend on the card. You can then redeem these points for things such as airmiles to receive an airline ticket or various types of merchandise.

Credit cards that have reward options are very popular among consumers as around half of all credit card offers. About 80% of these rewards cards have no annual fee attached with them. But they typically come with a higher annual percentage rate (APR).

Because of this many experts caution you when you apply for a rewards credit card since you may end up paying more for the card than the awards that you will receive. For example, you may carry a high APR and then pay hundreds of dollars in interest when the rewards you receive will be worth much less. It may be the case that you can purchase the reward the offer you with the money you would save by having a lower APR.

For you to get the most out of your rewards credit card you need to be sure that it gives you the best overall value and is suited for the way you intend to use the card. If not you could end up paying more for the privilege, as it will depend on your interest rate and monthly balance.

A good example is with frequent flier rewards cards, which are currently very popular. These types of cards are airline affiliated and will reward you with one airmile for every dollar you spend on the card, as well as extra miles for using the card for purchases with airlines and businesses that are affiliated with the card.

Typically these rewards cards have annual fees in the range of $50-$150 and APR’s from 15%-18% according to CNN/Money. These types of cards are popular among frequent travelers and people that use their card often. For these types of people the card is a good option but if you do not spend very much on your credit card a cash back card may be a better option.

Here is why: usually it will take 25,000 points in order for you to receive a free air ticket within the USA. The average person in the USA spends around $5,000 on their credit card annually. With these figures it would take 5 years to get a free ticket. It should be noted that 60% of people that have credit cards have carry over balances according to CNN/Money. Carryover balances on the card will negate the reward value of your credit card.

You should be aware of rewards credit card offers with a cash rebate of higher than 5%. These types of credit cards generally have a higher interest rate. This can make it a bad deal if you carry a revolving balance even when you factor in adding the higher cash back rebate.

What rewards card should you choose?

Points rewards cards are a better deal according to the Wall Street Journal. Typically with many cash back cards you will receive $250 back after spending $25,000 on the card. But a rewards card that gives you points, when spending $25,000, will get you a free airline ticket that can be worth as much as $500.

The flowing cards may give you the most points and have the fewest fees associated with them: American Express Blue, Chase Perfect Card, Chase Travel Rewards® Card, Bank One Disney’s Visa®, and Bank One Flexible Rewards Select Visa®.

Getting the maximum value from Your Rewards Card

To aid you in getting the maximum value possible from your rewards card you should consider these tips from the Wall Street Journal and other financial experts.

• Look for rewards cards that have several reward options. This will allow you more flexibility when you want to exchange the points for merchandise.
• When you receive points, spend them. It is best to spend the points quickly as credit card companies have the ability to change or downgrade the reward offers at any time. If you are saving up points and the credit card company changes the offer there is noting you will be able to do about it.
• Only sign up for a reward card you will pay off every month. By doing this you can avoid paying higher interest charges.
• Only apply for one card at a time. The more rewards cards you carry the less of a chance to add up the rewards since you are not using the one card. With many rewards cards a great deal needs to be spent on the card in order to receive the rewards. By using several cards it will take you just that much longer to get the rewards.