Who wouldn’t want to get paid to spend money? Earning points, miles, and cash back can be an attractive bonus for anyone who is going to charge a purchase anyway. At the same time, how do you know you are getting the best deal? These tips can help you compare credit card rewards and become aware of the fine print.

Earning Reward Points

Most cards earn points for every dollar spent, excluding balance transfers and cash advances. Examples of the three most common approaches are:

• two points per dollar spent on any purchase
• two points per dollar spent on regular purchases and five bonus points for special purchases
• one point per dollar for the first $1,000 spent, two points for the next $1,000, and three points per dollar for any additional purchases

Credit card rewards do not always follow a standard structure. They can also vary based on the product being purchased or the retailer selling the item or service. For instance, some cards give two percent cash back on groceries and fuel and one percent cash back on all other purchases. Other credit card companies feature special deals, such as five-times points for restaurant spending during the month of May or for limited-time purchases at particular online retailers.

Accumulating Points

Most consumers believe their ability to earn points is infinite, but some companies set a cap. Even if you can earn five-times points from dining out, those bonus points may be limited to the equivalent of $300. If you go over that limit, you may have to settle for regular points until the start of a new year.

In addition, credit card rewards often expire after a certain time. Some points expire one year after they are earned, so if you do not use them, you lose them. Other points accumulate indefinitely. If you request a cash back check or a gift card, you may have less than a year to spend the reward before it expires.

Calculating Point Values

Point values are not always equal between credit cards. Even if both cards earn 1 point for every $1 spent, Card A may charge 1,000 points for a gift card while Card B may charge 1,500 points for the same gift card. Even though you are accumulating points at the same rate, you end up paying more to redeem Card B’s rewards.

Spending Reward Points

Depending on the credit card, points can be redeemed for cash, gift cards, airline tickets, cruises, hotel stays, car rentals, shopping sprees, and more. Not all cards offer all options, and not all of the options carry the same redemption values. As an example, you may need 10,000 points to get a $100 travel voucher but 12,500 points to get $100 in cash.

The same principle applies to redeeming points for merchandise. Buying an item with reward dollars may be more expensive than buying the item outright. Find out how much your points are worth in dollars to see if that special sale is really a good deal.

Getting the Most Value from Credit Card Rewards

Reward credit cards typically charge a higher interest rate or an annual fee. Avoid carrying a balance so that your interest charges do not wipe out your benefits. In addition, you should try to accumulate more points or miles than you are paying out in extra fees.

Flexibility can also help you enjoy the benefits of your rewards credit card. Airline vouchers are popular bonuses, but they often come with limited booking schedules and multiple blackout dates. Staying open to different options can reduce frustration when you finally earn a plane ticket.

Overall, stay aware of the fine print every time you apply for a new credit card, make a purchase, or spend points. By understanding conditions and restrictions, you can use your rewards credit card to your advantage.

Further Reading on Credit Card Rewards

The topic of earning more rewards is one that has been written about at length. Here are a few useful resources to expand your knowledge:

• US based expert on earning frequent flyer rewards points
• An overview of how rewards cards work in the UK
• Wikipedia’s article on rewards programs
• Summary and Q&A on rewards in Australia

This entry was posted on Sunday, February 19th, 2012 at 6:43 PM and is filed under Credit Cards. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.