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How to Choose a Rewards Credit Card
With a variety of options for rewards credit cards, it can be overwhelming to choose the right one for you. However, there are some factors to consider when choosing a rewards card that may make it easier for you to make a decision.
Should You Get a Rewards Card?
Rewards credit cards are not for everyone, and most cards require the user to be diligent in their payment plans. Typically, people who are successful in using rewards cards meet the following criteria:
- You have good or excellent credit;
- You typically don’t carry a credit card balance;
- You travel frequently;
- You travel with a particular airline or stay at certain hotel chains;
- You spend a lot of money on groceries, gas, and restaurants.
Rewards cards are ideal for people with excellent credit, although there are some options for people with fair credit. Additionally, rewards cards generally have higher APRs, which can easily accumulate a large amount of interest and cancel out your rewards.
Earning vs. Spending Rate
People who want a rewards credit card should consider the earning potential of that card, how much they need to spend to earn rewards, and where they can earn the most rewards. For instance, some cards make you spend a certain amount before you can start earning rewards. On the other hand, certain cards may make you reach a certain rewards limit before you can start spending them. This may not be ideal for people who aren’t planning to spend a large amount on their credit cards.
Additionally, you should look at what kind of rewards you can earn with the card and determine if it’s right for you to make the most out of your rewards card. For example, if you have a rewards card that earns a large amount of rewards on airline miles, but you only travel once a year, then that card might not be the best option for you. Instead, determine your biggest spending category and search for credit cards that offer large rewards for that category.
Fee Considerations
Rewards cards offer a lot of value for their rewards, and often companies offset this value with credit card fees. Some rewards credit cards charge annual and foreign transaction fees that can add up quickly. Some cards even charge a fee to redeem rewards.
It’s important to read the fine print in the card’s terms and conditions when choosing a rewards credit card. However, if you plan on spending a large amount on the credit card, your rewards may offset the annual and foreign transaction fees. Cards that charge an annual fee typically have more complex and comprehensive reward systems. For instance, the Chase Sapphire Reserve Credit Card has a steep annual fee of $550, however, their rewards program offers $300 in travel credit every year.
Rewards credit cards can certainly be beneficial to cardholders, especially if they are planning to spend a certain amount on their card every year. Knowing how these types of cards work can help you determine which card will serve you best.