If you’re already using credit cards to make the majority of your purchases, you may be wondering if you’re getting the best rewards. With so many reward card options out there, it can be confusing trying to figure out which one you should use.
Before going further, a quick disclaimer: if you are in credit card debt, work on paying that off as quickly as possible. Don’t get new credit cards - in fact, just don’t use credit cards at all. Using credit cards can be a great way to earn rewards and get cash back but only if used responsibly.
With that out of the way, let’s talk reward cards. There are many different options and which one you chose depends on how you plan on using the rewards. If you need a quick primer on reward cards, check out the next section for an explanation.
If you’re new to the concept of credit card rewards, let’s go over what those are and how you can use them to save money. Certain credit cards offer a bonus to entice you to sign up and use them for your daily purchases.
The bonus could be in cash back, airline miles, hotel points, or as reward points for a certain program. The amount you can get varies from card to card and many companies run promotions with an increased bonus to drive sign-ups.
There’s usually a minimum amount you need to spend in a certain time period to get the bonus. For example, a credit card may require you to spend $1,000 in three months to get your sign-up bonus. If you don’t reach the spending requirement in that amount of time, you won’t get the bonus.
Many credit cards that offer bonuses charge an annual fee, which you’ll see as a line item on your first month’s statement. However, some of them will waive the fee for the first year as part of a promotion. There are also a number of reward cards that don’t have a fee, but they tend to have lower sign up bonuses.
Now that you know a little about reward credit cards, you may be wondering how to choose the best one for you. In short, there’s no quick and easy answer to that question. Which card you apply for depends on your goals for the rewards as well as your ability to meet the sign-up bonus requirements.
It’s important to select a reward card that will fit your spending pattern and help you maximize your earnings. For example, don’t get a card that offers great cash back earnings for eating out if you never go to restaurants.
Planning to take a trip? You may want to consider some travel reward card options that will earn you airline or hotel miles. Since it can take a few months to complete the spending requirements and get your bonus, plan to get the credit card at least six to nine months before you need to use it for your trip.
Let’s talk cash-back cards. These types of reward cards are great for people who don’t want to deal with points, miles, and other redemption options. Instead, you just get your bonus in the form of cash that you can use for groceries, gas in your car, a new outfit, paying it towards your account balance and so on.
In addition to the sign-up bonus, these cards offer certain categories where you can earn extra cash. For example, certain reward programs may offer you 6 percent cash back on your grocery purchases up to X amount.
Picking the right card that aligns with where you spend most of your money will help you maximize your earnings. Check out some of the options below and compare them with your monthly budget to find out which ones will be the best ones for you.
If you’re looking for a simple and straightforward card that will give you cash back on all of your purchases, check out the Citi Double Cash Back card. There are no categories to keep track of and no points you need to convert.
This card gives you 1 percent cash back when you use it to make purchases and also 1 percent cash back when making your monthly payment. Net result - 2 percent cash back on all of your purchases. Keep in mind that paying off your credit card balance in full every month is always a good practice.
As a quick example, if you spend $1,000 a month using this card, you’d get $20 cash back. There's a $25 minimum before you can redeem your rewards. Redemption options include a check, statement credit, a gift card to a major retailer or a credit to your linked Citi checking or savings account. You also have the option to send the money to a checking account from which you’ve paid at least two Citi credit card bills.
This card has a couple of downsides - no sign-up bonus and a 3 percent foreign transaction fee. However, getting 2 percent cash back across the board on all purchases is a pretty good deal, especially since you don’t have to worry about points and miles. And FYI, this is the card I used for all of my everyday purchases.
Does a big portion of your monthly budget go toward eating out and entertainment? Check out the Capital One Savor Cash card to earn 4 percent back on those categories. There’s no cap on your earnings.
The card also comes with a $500 cash bonus when you use it to spend $3,000 on purchases within three months of opening the account. The annual fee is waived for the first year and it’s $95 after that.
You’ll also earn 2 percent cash back on your grocery shopping and 1 percent on all other purchases. Another bonus is no foreign transaction fees plus extended warranty protection and price protection.
Looking to get the most money on your grocery shopping? Check out the Blue Cash Preferred card from America Express. You’ll earn 6 percent cash back on purchases at U.S. supermarkets on up to $6,000 of spending each reward year, then 1 percent.
In addition, you can get 3 percent cash back at U.S. gas stations and 1 percent cash back on everything else. The card comes with a $200 cash back bonus after you spend $1,000 in purchases in the first three months of account opening.
Keep in mind that the card comes with a $95 annual fee that is not waived the first year, unlike other cards. While you’ll be charged a foreign transaction fee of 2.7 percent for using it outside the U.S., it offers other perks such as return protection, extended warranty protection, and purchase protection.
If you like to travel, getting a rewards card that earns you airline miles or hotel points can be a great option. Each airline and hotel chain has its own loyalty program so keep that in mind when looking for the best options.
Which card you select will depend on a number of factors, including how you plan to redeem your rewards and how much you spend monthly. For example, there’s no point getting a reward card for an airline that has limited flight availability from your closest airport.
With that said, below are some great options for stretching your travel budget.
If you travel frequently, check out the Wells Fargo Propel American Express card. It comes with a $300 (30,000 points) sign up bonus after you spend $3,000 in the first three months of account opening. You’ll earn 3 points on eating out, travel and select streaming services.
Travel purchases include flights, hotels, gas stations, Uber rides, public transit and more. For purchases outside these bonus categories, you’ll get 1 point per dollar spent. There is no annual fee and no foreign transaction fee.
Other perks include cell phone protection from damage or theft. There’s no limit on how many points you can earn, and the points don’t expire as long as your account remains open.
If you’re new to travel rewards, one of the best cards to get started is the Chase Sapphire Preferred card. The current bonus is 50,000 points after spending $4,000 on purchases in the first three months of account opening.
The bonus is worth $625 in travel when you redeem through the Chase Ultimate Rewards portal. This program allows you to book your travel using points or to transfer them to partners such as Southwest Airlines and Hyatt hotels.
You’ll earn 2 points per dollar on all travel purchases and on eating out. Everything else earns you 1 point per dollar. There’s a $95 annual fee that’s waived the first year. The card also offers primary auto rental insurance, trip cancellation coverage and no foreign transaction fees.
Looking for a straightforward travel rewards card with a sign-up bonus? The Capital One VentureOne Rewards credit card is a good option. It comes with a 20,000-miles sign-up bonus worth $200 in travel statement credits. To get it, you’ll need to spend $1,000 in purchases within three months of account opening.
Earning rewards with this card is fairly straightforward. You’ll get 1.25 miles per dollar spent and a bonus 10 miles per dollar spent on hotels when you pay with your card at www.hotels.com/venture.
The miles you earn can be transferred to any of the more than 10 travel partners, including Air Canada, Air France, and more. As an added bonus, the card comes with no foreign transaction fees on purchases outside of the U.S.
Earn 1.5 miles per dollar spent with the Discover it Miles credit card. This includes all purchases and there’s no spending cap. While this is marketed as a travel rewards card, you can redeem your miles for anything from a travel statement credits to cash deposits.
While the card doesn’t offer a sign-up bonus, it offers a year-end bonus of sorts - you’ll get a cash back match on all purchases you make within your first year of card membership. This means you’ll earn 3 miles on all purchases within the first 12 months of using the card.
There’s no annual fee and no foreign transaction fee on purchases outside of the U.S. If you’re traveling outside the U.S., this could be a good option for the first year you own the card. Keep in mind that your earnings will go back to 1.5 miles per dollar beyond the first 12 months.
For the best total value option, check out the Platinum Card from American Express. The current sign-up bonus is 60,000 membership rewards points after you use your card to make $5,000 in purchases in the first three months of account opening.
You’ll earn 5 points per dollar spent on airfare booked directly with the airline or Amex Travel and prepaid hotels purchased through Amex Travel. In addition, your points can be transferred to 20 airline and hotel partners.
This card comes with a steep $550 annual fee that’s partially offset by a $200 annual airline rebate for incidental fees. You’ll also get up to $200 in annual Uber credits and up to $100 in credit at Saks Fifth Avenue. Another perk is a rebate for the Global Entry or TSA PreCheck application fee. Finally, you’ll get access to Centurion and Priority Pass airport lounges.
There are a number of different reward cards that can help you earn more with every dollar you spend. Which one you select will depend on how you plan to use the rewards as well as on your spending patterns.
Keep in mind that you should only explore reward credit cards if you pay your bills in full each month. If you have credit card debt, paying it off should be your main focus.
Need help getting your finances in order? Talk to a qualified financial advisor who can help you create a budget and align your resources with your long-term financial goals.
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This is a post from Clint Haynes, a Certified Financial Planner® and Financial Advisor in Kansas City, Missouri. He is also the founder and owner of NextGen Wealth. You can learn more about Clint at the website NextGen Wealth.
NextGen Wealth, LLC is a registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities product, service, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, or attorney before implementing any strategy or recommendation discussed herein.
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