Have you ever received an offer to join a rewards program from a credit card provider, but were unsure if this option was right for you? Unlike regular credit cards, rewards cards can provide customers with many unique perks and financial benefits. Each dollar spent using a rewards card can earn the user cash back, gift cards or even travel miles.
Saving small amounts of money on your seemingly insignificant purchases can quickly add up. These savings can be used elsewhere or stockpiled to redeem prizes. However, there are potential drawbacks to keep in mind when you are considering whether or not to apply for a rewards card. Learn more about the benefits and drawbacks to credit card rewards programs below.
What is a credit card rewards program?
Rewards programs offer users a variety of incentives to make purchases using their rewards credit cards, especially on groceries, fuel, dining out and purchases made at certain stores. In return for making a purchase, customers can earn:
- A percentage of their cash back. Shoppers can earn anywhere between one and five percent cash back for each dollar spent using their cash back rewards cards.
- Travel miles. Those who travel often can use travel rewards cards to earn miles to put towards travel expenses, like hotels or plane tickets.
- Card points. Like miles, users can accumulate points for every purchase made using point rewards cards. These points can then be redeemed for gift cards.
Another option for those who frequently shop at a particular store is a store rewards card. Some department stores offer rewards cards for their shoppers that provide perks specific to the store, such as automatic discounts. By taking advantage of these offers, users can quickly use their rewards program savings elsewhere in their budget.
The Pros of Rewards Credit Cards
Rewards cards offer perks for users that quickly catch attention: cash back, travel miles or points that can be redeemed as they build. However, those are not the only perks these cards can offer. Learn more about the benefits of credit card rewards programs below.
Sign-up bonuses are often offered to new members as an incentive to join a credit card rewards program. New members are typically required to meet certain spending limits within the first few months in order to cash in on these larger rewards, such as:
- A significant cash bonus, such as $200.
- Bonus points or miles, usually around 50,000.
- Double cash back for the first 12 months.
Claiming these sign-up bonuses and other benefits can quickly give your budget a boost. Rewards cards often provide special privileges as well. Access to exclusive travel lounges and pre-sale tickets are just a few perks you may receive.
Major rewards programs may offer insurance on purchases and travel as well. For frequent travelers, access to accidents and lost luggage insurance can really come in handy.
Likewise, purchase insurance can help you get reimbursements or replacements for damaged or stolen goods. They may also allow you to earn refunds if you find a lower price for a recent purchase you made.
The best rewards cards often require that you already have a high credit score in order to apply. For users with high credit, these top tier rewards cards can keep you ahead of the curve and bring in even more savings.
However, there are some rewards credits cards that are designed to improve a user’s credit score. These are known as secured rewards cards, which require you to provide a refundable security deposit in order to establish your credit line.
Overall, these cards offer fewer incentives and rewards than higher-tier cards. However, they help you improve your credit and increase your chance of qualifying for better rewards cards in the future.
Pesky surcharges and annual fees often drive consumers away from rewards cards, as they try to avoid extra costs. Annual fees can hike up the cost of owning the card, reducing the worth of your rewards. Likewise, you may face foreign transaction fees when using certain cards while abroad. However, some rewards cards offer to waive these fees, either for the first year or overall.
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Commonly, foreign transaction fees are reduced or waived by the best travel rewards cards. If you are a frequent traveler, this can save you up to 3 percent on every purchase you make on your trips. Customizing your card to suit your current purchases and future goals are essential to maximizing your savings and rewards.
The Cons of Rewards Credit Cards
In the hope of attracting more customers, rewards card providers offer incentives that can be highly beneficial when used right. However, users often unknowingly agree to sign up without fully understanding the terms and conditions of these cards, and run into financial trouble as a result. Discover the potential drawbacks of rewards cards below.
One major drawback of any credit card is steep interest rates. With rewards cards, you can sometimes see an annual percentage rate (APR) of up to 30 percent.
As a result, missing a payment for any reason can significantly increase what you owe and reduce the power of your rewards. This is easy to avoid if you set up automatic payments or payment reminders for your rewards card each month.
What are some of the limitations on rewards credit cards?
Though rewards cards offer enticing incentives and prizes, there may be limitations you need to keep in mind. For example, some credit cards require you to cash in on your rewards by a certain time. Otherwise, these points or miles may eventually expire.
Alternately, your points may expire if your card is inactive for a certain period of time. Other cards may require you to earn a specific amount of rewards before you can take advantage of them. Make sure to read all of the terms and conditions regarding your rewards credit card to ensure you receive the most perks.
Rewards cards can offer many great benefits when used responsibly. By quickly paying off your balance, making responsible purchases and avoiding fees, you can earn both financial and travel perks with ease.
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