There are many credit cards offering lucrative rewards programs to consumers — thus, it can be a tough challenge to decide which ones provide the highest value for the money you spend each month.
Rewards are distributed as points or airline miles. They may then be redeemed toward booking travel reservations or buying merchandise. They may even be used in the form of cash or credit toward your statement.
Cash back is another type of reward that many issuers offer to their clientele. However, there’s a difference between this incentive and the previous two. That’s because you can determine a hard cash value with the former.
When you get cash back on your spend, you are told what that percentage will be based on that credit card’s program. For instance, you may get 5% cash back on supermarket purchases, with a spending limit of $1,000 per year.
Some simple math dictates that your reward would equal $50 for each year you use the credit card on supermarket purchases. However, your credit card may offer points or miles instead of a specific cash back percentage based on what you spend. Thus, it may be a little tougher to figure out if that credit card’s rewards program is worth the enrollment.
Maybe you are confused about what you are actually getting with your rewards credit card. Here, we have some tips to help you determine the worth of a credit card reward point. Thusly, you can make a better, smarter decision on redeeming those rewards.
Perhaps you may be in the market for one of these credit cards. This can help you select the best credit card for your particular spending habits.
Redemption Policies
The type of rewards being offered is based on the particular credit card. In this case, it’s either points or miles. Therefore, the value of each can be largely determined based on how you earn and redeem your reward.
Let us say that your credit card offers two or three miles for every dollar you spend. Thus, it is important to know how you can redeem those miles. Maybe they are only applicable as a statement credit on a future travel expense. In that case, each of those miles may only be worth roughly one cent a piece.
Perhaps you collect 20,000 of those miles. Then, you have about $200 worth of value to put toward booking an airline ticket or hotel room. Some credit cards work with corporate partners. With these credit cards, you can earn more points when shopping at those retailers over others. That is because they are not part of the credit card issuer’s network.
You may get one point for every dollar spent on any purchase. Plus, two points for every dollar spent with their retail partner. Earning enough of those points may then qualify you for certain prizes. Reading your credit card user agreement is a helpful way to break down points valuations because it will tell you how many points you need to earn in order to redeem them for each prize. Maybe one of those prizes is a store voucher of $20 to the credit card issuer’s partner retailer. You need to earn 2,000 points to get that voucher. Therefore, each point is worth roughly one cent.
Hotel points and airline miles can be even more difficult to figure out. That is because the value is determined by how and when you can apply those points or miles to booking reservations.
There are a variety of factors that come into play that can affect the value of your rewards when you try to redeem them. For hotels, the actual value can be predicated upon how many you need to use in order to book a certain room. Let’s say you apply a large number of them to secure an expensive room. In that case, each point could be worth more versus having to use less of them to book a somewhat less expensive room.
For instance, you may need to use 15,000 points to book a room that costs $500 at a property in Hawaii. That breaks down to about three cents a point. However, let’s say you use 7,000 points to book a $105 a night room in Cincinnati. That breaks down to around one and a half cents…and you are not in Hawaii, you are in Ohio.
Airline miles present an even bigger challenge. That’s because you are dealing with awards levels for certain seats. Additionally, you may also be forced to contend with blackout dates. That might require you to use more miles in order to secure a seat on a specific flight.
Many carriers impose minimums for redemption. This can typically be 25,000 miles for a roundtrip domestic ticket. Unfortunately, you may not find very many seats available at that redemption level. There are even fewer on flights bound for popular destinations.
Let’s say you want to find a seat on a certain flight. Yet, you may only have business or first class seats available to you. Those will require significantly more miles than 25,000. Therefore, if your dates are flexible and it’s not during the peak season, your miles will have a different value. This is better than if you are trying to book a more expensive ticket.
Using Your Points
There are certain steps you can take. They will help you figure out how your points or miles break down to a monetary value. These will be redeemed in the manner prescribed by your rewards policy.
However, in order to actually receive that value, you need to use your points. Many consumers do just the opposite. They elect to hoard their points or miles. They let their earning accrue into the thousands or hundreds of thousands. They may be saving up their rewards to apply later at some undetermined future date.
They know that they have a treasure trove waiting when they do decide to book a reservation. Yet, this can prove detrimental to receiving the full value of their rewards. That is because many programs put an expiration date on their points and miles. If you do not use them before that date comes, you’ve essentially lost out on what you’ve earned.
Furthermore, the price of everything goes up over time. Airline fares constantly fluctuate whether you are paying directly with cash instead of points or miles. You could find a roundtrip flight from Los Angeles to New York at $320 or $820. It just depends on when you decide to buy and when you wish to fly.
Though, using your miles for that flight is a different story. The airlines have made every attempt to monetize just about all facets of air travel. This includes charging fees for checked bags and additional fees to sit in an exit row. They have also made it more expensive and somewhat tougher to find airline flights that can be purchased almost entirely with rewards.
A flight that may have been available for 25,000 miles may now cost you 35,000 miles or more. It’s based on when you wish to travel. Let us say that you used those miles a year or two ago. In that case, it may have cost fewer miles. Thus, your miles would have had more value.
Now you need to spend more of them for the same seat on the same flight. Again, it depends on your travel plans. It may actually be more frugal to purchase that airline ticket with cash.
That is because you’ll end up spending less for it than if you applied your points to that reservation. There are blackout dates and limited flights. Therefore, the ticket you acquire with points may not get you as much value as if you buy it with cash.
Yet, how to decide if you should opt to pay with points or out-of-pocket? You need to do some math. In doing so, you’ll see how your credit card rewards stack up against putting that purchase on your credit card.
Price
Perhaps you are interested in buying something, be it an airline ticket or a big screen television. Look at the market price of that item. If it costs you $500 to buy, check and see how much you’ll end up paying for that same item in points.
Let’s say that $500 item can be acquired using 50,000 points. Thus, the transaction breaks down to a value of one cent per point. Can those points be applied to something else yielding a higher value per point instead?
Comparison Shopping
If you do decide to buy that item with points, you should do some comparison shopping. That way, you’ll find the best price on that item. Finding that item at a slightly lower cost can bring you better value for your points. The fewer points required per dollar, the more value you are receiving for those points.
You still are looking to buy that big-screen television. You can get one for 35,000 points versus 50,000 points and the market price for each, are somewhat comparable. Then, you may be able to spend fewer points for the relatively same item. Yet, that will depend on what you really want in that item and the quality of that product.
How Your Rewards Programs Affect Value
As we’ve discussed, using your rewards is the only way to receive real value for them. Collecting them is a nice idea. However, they’re not worth anything until used. Your rewards program may reduce the value of your points. They can do this either through expiration or raised costs. Therefore, you need to determine the value of your credit card rewards points.
Here are some important things to keep in mind when it comes to redemption.
Rising Costs
Airline tickets aren’t the only thing that becomes more expensive over time. Look around you and you’ll see the costs of everything going up. What do you think that’s going to do to your points and miles?
That’s right! It is going to require you to spend more of them to get the things you want. There is a great way to avoid the inevitable rise in the cost of these things. It is to apply your points to getting them as soon as possible. Do not wait to use those points at some point later on. You’ll only be forced to spend more of them once redeemed.
Spend Wisely
A popular practice is to hoard a large number of points to apply to expensive, big ticket items. Thusly, you can basically get that item for “free”. However, remember, you spent a lot of money in purchases to earn those points. Those points weren’t free.
Now that you are ready to redeem them, think before you spend. This is because you get more value out of each point when you stay away from expensive products. The items that cost less will yield a bigger return on your points.
The high-priced items are more in demand. Thus, they obviously require more points. Use them for things that aren’t in as high a demand. In doing so, each point will be worth more when you redeem them for those items instead.
Earning the Most Rewards
We’ve now discussed getting as much value as possible out of your points. Therefore, you are going to want to make sure you get as many points as possible based on your spending.
There are so many credit cards out there. It can get a little confusing as to how you can earn points (or miles or cash back). Yet, wonder no more. Here are some of the common ways to get the maximum amount of rewards from your credit card in the quickest span of time. The faster you earn, the quicker you can spend them.
Select Carefully
There is a myriad of credit cards with good rewards programs. Conversely, if they’re not best suited for you and your spending routines then what’s the point? Before you begin your search in earnest, think about how you spend each month. Where do you make the most purchases on a routine basis? Do you visit gas stations often? Are you shopping at supermarkets once or twice a week?
Do a little self-evaluation about your particular spending habits. Then, seek out the credit cards that offer programs which reward you the most for those purchases. Remember, this is about earning as many points as possible.
Thus, be sure your credit card will give you the maximum for the types of purchases you make most frequently. Stay away from credit cards that are branded to one particular retailer or chain. This is most important with gas credit cards. This is because you want to be able to earn rewards at all gas stations. You don’t want to be bound to just the one or two that are within a specified brand network.
Factors for Selecting the Right Card
Compare credit cards. You will want to get the most value from that credit card through the rewards you can earn. Also, get it through a variety of other factors. These are the ones that can make earning rewards easier, and ultimately more lucrative.
You should ensure that you are getting total value from your credit card. Accordingly, you’ll need to consider a few things. This includes the type of rewards you can earn. Plus, any money you may need to spend to enjoy the perks of signing up.
Choosing your Reward
Cash back, miles, or points. Pick your reward. Though, before you do, think about which one brings you the most value for your earnings. Based on recent surveys, credit cards that offer a cash back percentage on your spend hold the most value.
However, maybe you would rather earn points and miles toward future purchases and reservations. In that case, consider the ways in which you can earn those rewards.
Travel rewards credit cards are going to bring frequent travelers the best value on their spend. That is because the majority of their expenditures will qualify for the most earnings. In addition, they can redeem those rewards for more travel perks.
Signup Bonuses
A large number of rewards credit cards offer new clients even more. This includes incentives to apply. That’s because they can earn a high amount of rewards from the very start. You will enjoy extra perks like 0% introductory APR’s for a year or more.
These bonuses typically include a large initial reward of points, miles, or cash back. That is only if the credit cardholder spends a certain amount of money on qualifying purchases. It must be done in a three month time period. These bonuses can yield a substantial number of rewards in a short time span. It allows the cardholder to redeem earlier than later.
Always Use your Credit Card
You earn rewards based on the money you spend on the credit card. Therefore, it is just common sense that you should use your credit card for every purchase. This is not an invitation to spend extravagantly.
It is simply a reminder that when you do need to buy something, do not pay with cash. Use your card especially for the purchases that give you the most points or percentage back on your spend. It is important to know what those purchases are before you swipe.
Most credit cards will have one or two specific categories. They are either static or rotating. They get you the majority of your rewards, alongside a smaller benefit on all purchases made with that credit card. Know before you go. That way you can spend wisely. In turn, you’ll earn the maximum every time.
Rotating Categories
Some credit cards will rotate the categories in which you can earn the most rewards. They typically switch each quarter. Thus, you really have to be aware of a change in your rewards four times a year.
For certain programs, you will need to manually opt in to earn the rewards on a new category. That can be a headache for consumers. Do not miss out on opting-in. If you do, you will not earn those increased rewards. Therefore, be aware of your credit card’s category policies and if yours rotate. Be sure to stay on top of those adjustments each quarter.
Advantages and Perks
Every credit card has them. Thus, you’ll want to be sure you are well-apprised of all that your credit card has to offer. This can include various discounts on purchases and early access to VIP events and concert tickets. It can also be for concierge service, and for upgrades on travel reservations.
Best of all, it’s increased earning potential for more rewards when you redeem your points or miles for travel and other purchases. This is typically done through the company’s exclusive cardholder services. You can only earn those additional points when using those services. Be better educated on everything that your credit card provides. Do this by reading your credit card user agreement. It is all in there.
It doesn’t matter if it is the Wells Fargo rewards program or Bank of America world points. The way to earn the most is by understanding how many rewards you can receive for the money you spend monthly. That means knowing your categories and using your credit card often.
Do not cater to your categories. Make sure they cater to you before you choose a credit card. When you are seeking out the right credit card, consider the fees you may be paying to keep that credit card in your wallet. Many rewards credit cards impose an annual fee on their customers.
This may not be a great idea for casual spenders or consumers. That is because most don’t make many large purchases throughout the year. There are additional fees for using the credit card to transfer a balance or conduct foreign transactions. This may also limit your choices among the many credit cards that exist.
Yet, when it is about getting the most value for your rewards points, consider how and when you wish to redeem them. That’s especially true when it comes to booking airline flights and hotels.
Flexibility in your itinerary will always be helpful to ensure you get optimum value from your rewards. Be sure to investigate those redemption rates, as well. Comparison shop as much as you can when you are cashing in your points. Keep all of these things in mind as you earn and spend. It will ensure you are always getting the most out of your credit card rewards program.