Last issue we talked about zero percent financing. Now, I want to talk about the benefits of ‘rewards cards’. You know, those credit cards that offer cash back bonuses, airline miles or other rewards that accumulate with each purchase.
Get the facts to determine if rewards cards are right for you.
Annual Fee and Interest Rates
First, rewards credit card generally have an annual fee and a higher interest rate than non-reward credit cards. You have to be absolutely certain that you will pay your balance off each and every month in full or the reward won’t be worth it.
Can You Use the Reward?
Nothing is worse than carefully accumulating points for a year, only to find you can’t use the reward. Ugh!
You need to find out what rewards are available, how many points and/or miles are needed, what are the exclusions? I was just reading an application for someone and for 25,000 points, they could get a free coach airline ticket valued at up to $400. That seems great on the surface, but what does that actually mean? Can you book that reward when and where you want to use it? How much do you have to charge to earn those 25,000 points?
If you were a part of my Nearly Free Travel Group, you know that we don’t have an airline miles rewards credit card. We earn our miles in more direct ways. We used to have several different types of rewards cards (airline miles, cruise points, etc.) but not anymore. But with everything in life, this is a choice we made. You may want to choose differently.
The Terms and Conditions
So what should you look for?
- How the interest is calculated – single or double cycle billing?
- How long is the grace period?
- What percentage is the minimum payment (typically 2 to 2 ½ %)?
Take your time and ask questions before applying. Make a pros and cons list – does it work for your future plans and current spending habits? To start your research, go to Nerd Wallet’s Best Credit Cards of 2015 for a comparison chart that will help you determine if a rewards card could benefit you.