Credit cards are a handy financial tool most people enjoy using. It’s a great quick fix when you don’t have money for an urgent expense or purchase. You don’t need to have cash with you at all. But that doesn’t make them a suitable means of payment for everyone. If you don’t have good spending habits, you can fall into the trap of overspending.
On the following source, find out for whom credit cards are the best choice:
https://www.experian.com/blogs/ask-experian/do-you-really-need-a-credit-card/
Reward cards are like upgraded credit cards. They don’t differ in any way, except they have the added benefit of allowing users to earn different bonuses. That’s how issuers award loyal customers. This tactic is used more or less by companies like American Express, Visa, Mastercard, etc.
Many companies on the market offer reward cards with different benefits for users. Such a vast selection can be confusing, especially if you’ve never used plastic money. That’s why it’s good to know the card features to help you find the best reward program that matches your spending habits.
Reward Types
Some would say that reward cards provide no value and are just a marketing gimmick. The truth is that these financial tools can be great if you use plastic money regularly and pay off your balance every month. That way, you won’t have to pay additional interest, you’ll develop good spending habits, and all of that will have a good effect on your credit score.
So reward cards can benefit you a lot. Apart from the already mentioned advantages, there is also the main one – the prize. It can be points, miles, or some percentage of cashback. Depending on the issuer and purpose, the first and last can be exchanged for money, used for purchases, or used to reduce your balance. Spending can be targeted if the issuer incentivizes specific consumption (such as at gas stations or grocery stores).
As for travel miles, you can also use them in different ways, but only for purchases and payments related to travel. If you can earn airplane miles, you can exchange them for tickets with a certain airline company. Or, if you earn points that can be converted into money, you can use it for travel purchases.
Interest Rates
No matter the attractive rewards, they shouldn’t be the deciding factor when choosing a reward card. What you should pay attention to are interest rates. If you use plastic money wisely, you won’t have to deal with these costs, but it’s still good to know them.
On average, interest rates for this means of payment are around 20 percent. Many issuers offer lower rates for worthwhile borrowers, so if you’re among them (good credit score, low DTI, positive credit history), you can grab some pretty good deals. For instance, when comparing Amex gold vs Chase sapphire preferred, the interest rate will be a starting point.
Bonuses and interest rates are important as individual parameters and for comparison. When deciding on these, you should also know your average monthly spending, as well as whether and how much balance you carry. Rewards that exceed the annual interest (or interest and annual fee) are a good choice. Otherwise, there’s no need to force spending if you still have to pay interest.
Fees
As with interest, fees neither should exceed the annual rewards you get when using the card. That’s why it’s critical to carefully study what fees issuers charge and how much they are. These are mainly annual fees, late payment costs, balance transfers, and foreign transaction fees.
An annual fee exists with most reward cards, but most issuers can waive this cost. Still, even if you’re not eligible for a reward card with no annual fee, you can enjoy some perks. In fact, cards with annual fees tend to have more incentives, such as a higher percentage of cashback.
How fees affect your decision depends on how you use the plastic money. For example, if you often travel abroad and use a card there, look for one with low or no foreign transaction fees. Or, if you plan transferring the balance from another loan or credit line, look for an acceptable balance transfer fee.
Welcome Bonuses
Welcome bonuses are another benefit that issuers offer to new card users. These are nothing but extra rewards, which can also be points, miles, or cashback. You have to meet some conditions for these bonuses to be redeemable, but they’re generally easy to collect. More on these sign-up bonuses read here.
Reward cards are a great way to monetize your spending. If you use them carefully and pay off your balance regularly, all the rewards you earn are nothing but free money. And as long as you don’t have higher costs than these incentives, you can benefit from plastic money.
