Using a rewards credit card can help you pay some of your travel expenses, book hotels, or earn cash back from all your purchases. Used right, it is a great tool. Let’s cover some of the best ways to use your rewards credit card and the worst credit card mistakes to avoid.
Getting the Most Value from Your Rewards Credit Card
A rewards credit card is only beneficial if you can make the best use of it. It goes beyond staking credit card rewards. Getting the most value from your rewards credit card involves the following best practices:
1. Choose the right card
The first step in getting the most value from your rewards credit card is to get the right card. Rewards credit cards come in cash back, points, or miles cards. The goal is to choose a rewards credit card that matches your spending and lifestyle. For instance, a travel card is the best option if you travel a lot while a cash back card is a better alternative for those whose costs are mainly groceries, gas, and entertainment.
2. Charge all purchases on your card
The easiest path to staking credit card rewards is to charge all your purchases to your credit card. Whether you are earning points, cash back, or miles, every dollar you charge on your credit card adds up to your rewards.
This, however, is not an invitation to go out and impulse buy everything that you do not need. A good rewards credit card should be accompanied by a sound spending plan. For instance, instead of paying cash for your regular groceries, use your card instead.
3. Pay everything back quickly
Credit card debt can cancel out the rewards you earn from your spending. Therefore, you should always pay off your purchases immediately to avoid interest charges and other fees for not clearing your balance. Failing to pay these purchases means that most or all your rewards will go to clearing your interest.
4. Know what your card can do for you
Rewards credit cards are not built equal. They come with various terms, fees, restrictions, and benefits. One of the worst credit card mistakes you can make with a rewards card is failing to read the fine print.
Some of the caveats to look for include:
- Rewards caps: some rewards credit cards have quarterly or annual caps on the number of rewards you can earn within a given period. Be aware of such caps so that you can maximize the benefits of your card.
- Expiring rewards. Some cards have expiry dates on the rewards you earn. Some cards have rewards that last as long as you have the card while some rewards expire within a few years. Be aware of the expiry periods so you can use your rewards before they expire.
- Redemption threshold. Unless you are using a cash back rewards card, you should be aware of the redemption threshold or the minimum points or miles you need before you can redeem them. Knowing the redemption threshold informs your efforts in staking credit card rewards and planning your credit card usage.
In addition to the caveats, you should be aware of additional benefits that come with using your rewards credit card so you can make the most of it. Here are some of the benefits of a rewards card that you might not be aware of:
- Sign-up bonuses. Most rewards cards offer a sign-up bonus for all new users on the condition that they spend a certain amount within a given period. Most of these cards have a sign-up bonus in the hundreds of dollars range.
- Multiple redemption options
- Multiple hidden benefits. Some rewards credit cards come with additional benefits, some of which may be unique to the network on which the card is based. Identify these perks to ensure you are taking advantage of these perks in staking credit card rewards.
5. Use multiple rewards cards
Diversifying your rewards credit cards can help you in stacking credit card rewards faster. For instance, you can use bonus rewards to earn higher-level rewards and a cash back card with a higher cash back percentage for your most regular purchases.
How to Earn More Credit Card Rewards
The most obvious path to stacking credit card rewards is to charge your purchases on the rewards credit card(s). However, you can use other strategies to maximize the points you earn from your rewards credit card:
- Maximize Bonus Category Spending
Most credit card issuers offer more rewards or benefits for spending on particular expenses. You can take advantage of the cards that offer higher rewards for categories that you already spend on regularly.
- Take advantage of signup bonuses
We’ve already mentioned signup bonuses as a benefit of rewards credit cards. Taking advantage of signup bonuses allows you to earn a bigger reward upfront once you meet the conditions tied to that sign-up bonus.
If you use a card with benefits you think your friends or family will enjoy, you can refer them and earn additional points for your referral. Check to see whether your card has a referral bonus and sign-up for the referral program to start stacking credit card rewards faster.
Redeeming Your Rewards
So far we’ve discussed ways you can maximize the potential of your card. The next part is about using the rewards you’ve been stacking. Cards offer different redemption options which include:
- Statement credits. Some cards allow you to redeem the cash value of your rewards to your account. This allows you to clear your balance or have extra funds on your credit card.
- Travel purchases. A card that accumulates air miles or points allows you to pay your travel expenses, access the airport lounge, or use your rewards in travel loyalty programs to pay for hotels.
- Gift cards are a common redemption option that allows you to redeem your gift cards for hotels, entertainment, restaurants, or shopping across multiple brands.
- Charitable donations. Some issuers allow you to donate your points to nonprofits and charitable institutions.
A common question that comes up when redeeming credit card rewards is the value of your rewards. Cash back rewards are easy to compute. However, when your credit card rewards you in points, the value of each point varies based on the card issuer. In most cases, the value of one point is equivalent to one penny.
Used the right way, rewards credit cards can be beneficial. However, you must keep some best practices in mind and avoid some of the worst credit card mistakes such as overspending to earn points or failing to clear your balance every month.
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