Have you been tempted by a "rewards" credit card, only to be burned by high interest rates and a less-than-stellar return when it came time to cash in your points? You're not alone.
Credit card companies make a lot of money by getting new customers, and most cards today offer some kind of bonus if you charge a lot on your card. If you aren't careful and use your card without thinking just to get a few small points, you could get in trouble. But if you follow a few simple rules, you can use that "rewards" card to your advantage and turn the tables on the credit card companies.
How to decide?
Most likely, your mailbox is full of offers for new and exciting credit cards that you have already been approved for. In 2005, more than 6 billion credit card applications were sent to people who had not asked for them. About 72 offers were made to the average person. If you need a new card, it's important to carefully consider your options. Most credit cards today come with some sort of rewards, but how do you know which one is best for you?
Look at how you live and how much you spend. Would a rewards card that gives you points, air miles, or cash back on purchases be useful to you? Most cards that are based on points give you one point for every dollar you charge. When you have enough points, the credit card company will usually set up a shopping portal where you can use them to buy a variety of things (e.g., electronics, gas cards, travel, etc.).
Most of the things in the catalogue are way too expensive, but it's better than nothing. Frequent fliers can get a lot out of air mileage cards, but in today's airline industry, who knows how much fees will go up by the time you're ready to cash them in? Before you can get cash back from cash back cards, you probably have to charge a certain amount each year. Make sure you read the fine print before you sign up.
Take Advantage
Credit card companies want you to sign up for their cards, and giving cards with perks is one way to do that. If you carry a monthly balance, the rewards rarely make up for the interest rates you'll have to pay. But here's the catch: you have to pay off your credit card every month and put those rewards to work. This is how: Use your rewards card as much as you can. We know, it goes against everything you've ever learned about using a credit card. Let us explain.
If your bill collectors let you, put all of your bills on your credit card instead of using cash or a check. Then, pay off that balance right away to avoid being charged interest. You'll get a lot of points quickly, and it will be the same as paying cash. Be careful, though, because the fee can kill you if you let those charges sit on your card for even one month.
Another idea is to ask for a higher credit limit and a companion card for one account instead of getting separate credit cards for you and your spouse. The more you and your friend swipe your cards, the faster you'll get rewards points.
Away from the crowds
As rewards cards have become more popular, credit card companies have come up with new ways to get people to use their cards. Many cards have a system that gives customers more reward points when they buy from certain stores. Some will even give you coupons that you can use at certain stores to save a lot of money and get extra points. It might take a little more work, but you'll definitely earn rewards points quickly.
