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Credit Card Reward Programs

Credit card reward programs that offer cash rebates, gift cards, or free or discounted merchandise are becoming increasingly popular. Competition among credit card companies is fierce and each is continuously looking to get an edge on their competitors.

Besides offering better interest rates and eliminating annual fees, credit card companies make their cards more enticing by offering a reward program. The details and rewards for each plan will vary from one card to the next, but they all work in a similar fashion.

For every dollar you charge to your rewards card you receive one or more points. Once you have gathered a certain number of points you can redeem them for merchandise or cash. The merchandise available will vary from one card to the next but they usually include a range of electronics, personal appliances, and sporting goods. Most programs also offer gift certificates so you can pick out exactly what you'd like.

Comparing Credit Card Rewards Programs Before applying for a card with a rewards program, you should think about which type of program would best fit your needs, or even if a rewards card is your best option.

Cards that have rewards programs generally charge annual fees, while many standard cards do not. Also, the interest rate on most rewards cards is at least a few percentage points higher than other cards. If you are the type of person who pays his bill in full each month and rarely carries a balance, a rewards card would serve you well. You can earn many points while keeping finance charges and fees to a minimum.

On the other hand if you usually carry a balance, you may be better off choosing a standard card with a lower interest rate and no annual fee. The finance charges on your balance will lessen the value of your reward, and you may even find that you could have bought your reward yourself for less than you paid in fees.

Another factor to consider is the points themselves. Do they expire? If so you'll need to charge enough each month to ensure you get your reward before you lose them.

How many points do you get for each dollar spent? The most common answer is one point, but some cards offer more than one point when you shop at preferred merchants. For example, you may earn one point for each dollar spent at most stores, but five points when you fill your tank at a participating gas station. If you regularly use merchants that belong to the program you can accululate points much faster.

Some cards will actually give you cash back. In this case you should look for the card that combines the lowest interest rate on purchases but the highest cash back rate. Most cards offer about one or two percent, though you can sometimes find one offering as much as 5% back.

So for each $1,000 you spend you will receive $10-$50 back. It's not huge, but it helps.

Again, the key to using credit cards with reward programs is calculating how much you actually save by using them and if you would be better off using a standard card without rewards.
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