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Rewards Cards: Are They Worth It?
Virtually all consumers will have a credit card at some point
in their lives. Is this an understatement? Probably, as most
consumers carry multiple credit cards. Selecting a credit card
should not be something taken lightly; card companies are
constantly looking for new consumers, but only after wisely
comparing offers should you select a provider. Pick a company
that will give to you a reasonable rate and one that incentivizes
their program with some type of reward for using their card.
So, how do rewards cards work? Almost without fail, rewards
cards typically give consumers money back on their purchases
[usually 1-2%] or allow you to accumulate points toward prizes or
discounts on future purchases. If you charge $10,000. per year
[not hard to do if you charge your groceries] and your rewards
card pays you a 2% reward on purchases, you will receive $200.
from the company. Usually you will gain the funds in the form of
several credits to your account spread out over the course of a
year, but in some cases you will receive the rewards in the form
of a check.
Rewards cards are free money, right? Only if you do not have
to pay an annual fee and you pay your credit card off every
month. If you do not pay your card off every month, your reward
could easily be overshadowed by monthly interest payments,
especially if your interest rate is high. Not too many companies
pay rewards and give you a low rate at the same time. In theory,
even if you carry balances for as little as 2-3 months before
paying your card off you could find your rewards for the entire
year outweighed by finance charges.
When rewards are given in the form of points that you later
can redeem for prizes or take discounts on future purchases, you
need to consider the following when selecting your card:
1. Is the reward program for something you know you will use?
For example, if you are a member of GM's rewards program, are you
certain that you will be purchasing a GM product in the future?
If so, go with this card as the return can be as high as 5%.
2. Is there an annual cap on purchases? Many rewards cards
will limit to you the amount of cash back funds or rewards points
you can accumulate in one year. Most people never come close to
the figure, but if you are a business traveler you can quickly
approach and pass these limitations within the year.
3. Do points eventually drop off? The majority of rewards
cards only allow you to accumulate points for three years before
they begin to drop off. If your next car purchase is five years
away and you have a program that drops off points, you could find
the first two years of card usage to be a waste as those points
would vanish. If you still want that particular rewards card,
only use it in years 3, 4, and 5 so that when it comes time to
purchase your new car you will not have lost any points. You
could consider getting and using another rewards card for a
different rewards system to cover years 1 and 2.
All in all, rewards cards can be a useful option for the savvy
consumer. Remember, points do fall off and carrying balances from
month to month will wipe out the value of the card in short
order. By showing plenty of discipline you can make rewards cards
work well for you.
Matt is a writer, web designer, and marketing manager based in
North Carolina, USA. Matt writes on a variety of subjections
related to business and travel. His primary website is for
business flight attendants and can be found here: http://www.corporateflyer.net.
MORE RESOURCES:
Credit - Google News
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