A rewards credit card is a type of credit card that offers incentives for your everyday spending. These incentives typically come in the form of points, miles or cash back earned for eligible purchases made with the credit card.
While these cards can provide value, it’s essential to understand how they work to make the most of their benefits.
Understanding rewards credit cards
Rewards credit cards allow you to earn points, miles or cash back for each dollar you spend on qualifying purchases.
Once accumulated, points, miles or cash back can be redeemed for rewards. Reward options vary by card, but common redemption choices could include statement credits to offset your credit card balance, direct cash deposits and travel bookings, including plane tickets or hotel stays.
Many cards offer bonus categories, such as dining or travel, where you could earn additional percentages back on purchases. Some cards may also have welcome offers where you can earn additional points, miles or cash back after meeting certain account terms and spending requirements.
Some cards’ points, miles or cash back may expire after a certain time. Before applying for a card, verify any potential expiration timelines for its points, miles or cash back.
Benefits of using rewards credit cards
Rewards credit cards come with several advantages that could make them a valuable addition to your financial toolkit:
- Points, miles or cash back for your spending: With a rewards card, you earn back a percentage of your spending on qualifying purchases.
- Travel benefits: Some rewards cards, such as airline and travel cards, may include perks like airport lounge access, preferred boarding or hotel credits. Some cards also waive foreign transaction fees, making them helpful for international trips.
- Additional cardholder benefits: Beyond rewards, many cards include extra perks like extended warranties, purchase protection and concierge services. These features could add value, depending on your lifestyle and spending habits.
Common pitfalls to avoid
While rewards credit cards could be highly beneficial, they also come with potential pitfalls:
- Overspending: Avoid spending more solely to earn rewards, as this could lead to unnecessary debt.
- Ignoring fees: Don’t overlook costs like annual fees or foreign transaction fees, which could reduce the value of your rewards.
- Not paying in full: Carrying a balance may result in high-interest charges that negate any rewards earned, so aim to pay off your balance every month.
Factors to consider when choosing a rewards credit card
Selecting the right rewards credit card requires careful consideration of your financial habits and goals.
- Spending habits: Choose a card that aligns with your spending patterns. For example, if you spend frequently on dining or travel, select a card with elevated rewards or perks in those categories.
- Annual fees: Evaluate whether the benefits and rewards you’ll earn will outweigh the cost of an annual fee associated with the card.
- Interest rates: If you anticipate carrying a balance, look for a card with a manageable APR to avoid erasing the value of your rewards through interest charges.
- Redemption flexibility: To get the most value, opt for a card with straightforward and versatile redemption options, like statement credit, travel opportunities or gift cards.
Rewards credit cards could be a powerful tool to make the most of your spending when used wisely. By choosing a card that aligns with your habits and avoiding common pitfalls, you could enjoy valuable perks and rewards without unnecessary costs.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
