How do I take advantage of credit card rewards?

There are many advantages and disadvantages of credit cards, but the advantages largely outweigh the disadvantages because bad outcomes are easily avoidable. Credit cards are a convenient way to build credit, finance purchases, convert currency and more. But they can also lead to expensive debt if used irresponsibly, and that could lead to costly credit score damage. There are plenty of other good and bad things to be said about credit cards when you really put them under the microscope. So let’s dive into some of the biggest ... read full answerpros and cons.

Here are the biggest advantages of credit cards:

• Credit building. Credit card issuers report your account details (utilization, payment, etc.) to major credit bureaus every month. This gives you a regular opportunity to add positive information to your credit reports, which will improve your credit standing. You can even benefit simply by opening a credit card and locking it in a drawer.
  Having a positive credit history will make a lot of your biggest decisions in life go smoother. You’ll more easily be able to purchase a car or a home, and you may even have better employment chances.
• Convenience. If you have a credit card, you don’t need to worry about carrying lots of cash at all times. Most merchants accept credit cards. And unlike cash, credit cards are easily replaceable and give you a $0 liability guarantee for fraudulent transactions. They also allow you to make purchases now and pay later.
• Rewards. Credit cards often reward you for buying things by giving you cash back, miles or points. This can lead to savings on trips, merchandise, gift cards or your credit card bill in the future.
• Benefits. Credit cards usually come with some benefits built into them for no extra cost. For example, you might get insurance for car rentals and accidents while traveling. You might get purchase protection to replace damaged or stolen items you bought with your card. And your purchases could receive extended warranties, among other perks that vary card to card.
• Currency conversion. Using a credit card is the cheapest way to convert your money from U.S. Dollars to another currency. Just make sure the card you use has no foreign transaction fee.

Here are the biggest disadvantages of credit cards:

• Easy to overspend. Since you’re not using physical money or a checkbook and don’t have to pay right away, credit card purchases may not feel quite as expensive when you make them. So it’s easy for balances to get away from you if you’re not careful. One of the best ways to avoid overspending with a credit card is to use the Island Approach. That means using one credit card for nothing but everyday purchases that you should be able to pay off by the due date every month. If interest charges ever show up on that account, it will mean you’ve been overspending.
  If you have a credit card balance that you’re carrying from month to month, or you’re planning to make a purchase that will lead to one, you should use a separate card for that. This will help you get the best collection of credit card terms, save more money and avoid spending too much. Making a budget and tracking your spending to keep yourself honest is a wise idea, too.
• High interest rates. If you don’t pay your balance in full by the due date, you will have to pay interest to the credit card company. And those interest charges will accrue at a very high rate. The average interest rate for all new credit card offers is 18.78%. The more interest charges you rack up, the higher your minimum monthly bill payments will be. And missed payments can lead to even more costly penalty rates as well as credit score damage.
• Fraud. Fraudsters couldsteal your credit card number and make purchases in your name. But so long as you report any such transactions, you won’t have to pay for them.
• Confusing terms. Credit card terms and conditions aren’t always the easiest to understand. In some cases, people end up being surprised by certain interest rates, charges or limits because the credit card company presented them in a confusing manner.
  The best way to avoid such a fate is to do your research when choosing an account. Focus on the types of things that are likely to affect you most, based on how you plan to use the card. WalletHub has also done lots of research on the credit card market, including a complete breakdown of the various benefits each major credit card issuer offers with its cards. Hopefully, that will help you better understand what you’re getting into.
• Multiple ways to hurt your credit. It’s not just missing payments that will hurt you. Applying for a card causes your score to dip temporarily, and using over 30% of your credit line is also bad for your credit. But setting up automatic monthly payments from a bank account, not applying for a new account in the months leading up to mortgage shopping, and either spending less or paying your bill more should help you avoid negative outcomes.

You should get a credit card. It will make everyday spending more convenient and can help you improve your credit standing. But at the same time, you should be aware of the drawbacks and sure to protect yourself. As long as you spend reasonably, pay off your purchases, check your credit report and score often and keep your utilization at a good level, you should benefit greatly.

You can redeem your credit card rewards online, through the issuer’s mobile app, or over the phone, depending on the card. The most common credit card rewards redemption options include cash back, travel purchases, and gift cards.

Once you redeem your credit card rewards, they’ll be subtracted from your rewards balance immediately. If you wish to redeem your rewards for a statement credit, it will generally be credited to your account within 2-3 business days, depending on the card. In some cases, rewards will expire if you do not use them by a certain time.... read full answer

Types of Credit Card Rewards

• Points: Credit cards that offer points generally give at least 1 point per $1 spent on purchases. You can redeem points for hotel stays and other travel expenses, statement credits, gift cards, or merchandise, depending on the card. Points cards are sometimes affiliated with hotel chains.
  
  Credit card points are worth an average of 1 cent apiece, depending on the card and the redemption method.
• Miles: Credit cards with miles are travel oriented, often affiliated with a specific airline. Rewards typically start at 1 mile for every $1 you spend on purchases. Miles can be redeemed for airfare, other travel expenses, gift cards, cash, or merchandise. Cards co-branded with a particular airline may reward you with seat upgrades, early boarding on flights, free checked bags, and more.
  
  Miles are worth an average of 1 cent each. The value varies based on the airline or credit card rewards program as well as how the miles are redeemed.
• Cash Back: Credit cards with cash back rewards return a portion of each purchase cardholders make, usually at least 1%. You can redeem cash rewards as a check, direct deposit to your bank account or statement credit, depending on the card. Some cash back rewards can also be redeemed for gift cards and merchandise through the issuer’s online rewards portal.

How to Redeem Your Credit Card Rewards Online

1. Log in to your online account. Specifics will vary by issuer, but your rewards will usually be featured on a main account page.
2. Click on your rewards balance. Once you click on your rewards balance, you’ll be taken to a page with more information about your redemption options.
3. Select how you’d like to redeem your rewards. You may be able to redeem your rewards for travel purchases, cash back in the form of a check or statement credit, merchandise, or gift cards, depending on the rewards card.
4. Redeem your rewards. Once you redeem your credit card rewards, the points, miles, or cash back will be deducted from your rewards balance immediately. If you’re redeeming for statement credits or covering past purchases, your account will usually be credited within 2-3 business days. If you redeem your rewards for gift cards or merchandise, you can expect them to arrive in the mail within 2-3 weeks.

While many rewards cards will let you choose from multiple redemption options, you’ll usually get the most value with one in particular. For example, travel rewards credit cards will often give you the most value when you redeem your rewards for travel purchases. Also, your rewards may be worth less if you redeem them for cash back or gift cards.

On average, credit card rewards are worth 1 cent per point or mile. Most major credit card issuers (like Chase, Capital One, and American Express) advertise that your rewards will not expire as long as your account remains open and in good standing. But you should check the exact terms and conditions of your specific credit card to make sure you don’t lose any rewards you’ve earned.

Yes, rewards credit cards are worth it as long as you don’t overspend just to earn the rewards. The best rewards credit cards are worth more than $2,000 in savings for the average person over the first two years of use, after annual fees.

You need good or excellent credit to get the most worthwhile rewards cards, however. Things aren’t as clear-cut for people with lower scores. In addition, rewards credit cards are only worth it for purchases that you can afford to pay off fully by the due date each month. Credit card interest rates are much higher than credit card rewards rates, so it’s best to use a ... read full answerlow interest card for balances that you’ll carry from month to month.

How to Choose a Worthwhile Rewards Credit Card

When determining if a rewards credit card is worth it or not, you have to weigh the worth of the rewards against the cost of the card. If the rewards card has no annual fee and you plan to pay the bill in full every month, it’s pretty easy to decide the card is worth it.

However, you’ll often get the best rewards and biggest signup bonuses from cards that do have annual fees. In that case, you just have to crunch the numbers to make sure you’ll get your money’s worth.

Popular Rewards Credit Cards to Consider

How to Get the Most Value From Your Rewards Card

Regardless of which rewards card you choose, be sure to understand how you can earn rewards most efficiently. Some cards have higher rewards rates for specific categories, and some give a flat rewards rate that you earn on all purchases. The fastest way to earn credit card rewards is through signup bonuses.

Many of the top rewards cards come with signup bonuses that you can get for meeting a minimum spending requirement in the first three months. The signup bonuses are usually worth several hundred dollars, enough to cover the cards’ annual fees for years. And you can get them for spending money you were already planning on spending.