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- Rewards credit cards can help you earn points, miles or cash back on your purchases for use toward statement credits, travel bookings and more.
- Rewards cards come in all shapes and sizes. Assess your spending habits and choose a card that suits your spending while earning rewards in categories that you prefer.
- If you have more pressing needs, such as paying off credit card debt, for example, you might consider alternative cards that don’t offer rewards but feature long introductory APR offers.
A rewards credit card is exactly what it sounds like: a credit card that rewards you for your purchases. Used responsibly, a rewards credit card can help you save money on everything from travel bookings to Amazon purchases.
But not everybody knows how to maximize their credit card rewards or what a good rewards card can do for them. How do you earn a sign-up bonus? What types of rewards cards can best suit your needs, and what are the best ways to redeem your rewards? These questions are especially worth investigating if your credit card charges an annual fee.
Are rewards credit cards worth it? In most cases, yes — as long as you’re not carrying a balance (on which you will have to pay interest) and any annual fees charged by the card are less than the value of the rewards you earn each year. Here’s what you need to consider when comparing your options.
Advantages of rewards cards
In general, the biggest benefit of using a rewards card comes from the rewards you earn. The best travel rewards cards earn points or miles on every purchase, while cash back cards help you earn cash back on your everyday spending.
Many rewards cards also offer a welcome bonus. These bonuses can help you earn rewards simply for becoming a new cardmember and meeting a minimum spending requirement within a specified tie.
Earned rewards can be redeemed for valuable money-saving opportunities like travel bookings, statement credits and online shopping credits. Many rewards cards don’t charge an annual fee, although the most valuable cards do. There are a lot of different cards and rewards programs to choose from, so compare multiple cards and programs to find the right fit for your budget and spending habits.
Disadvantages of rewards cards
Although there are many advantages to using rewards cards, these types of cards also come with some potential disadvantages you’ll want to weigh before deciding whether they are worth it for you.
For example, it can be tempting to spend more than you can comfortably afford in order to max out your rewards, which might put you at financial risk. The same goes for a sign-up bonus.
Also, if you don’t actually redeem your rewards, you’re leaving money on the table. How much money depends on how much your rewards are actually worth, which can be hard to tell. Some redemption options provide less value for your rewards than others, so it can take time and effort to learn which rewards you should earn and how to maximize them.
Many of the best rewards cards charge an annual fee. They also require you to have good or excellent credit. Keep in mind that issuers will pull a hard inquiry on your credit every time you apply for a new card. Although one or two hard credit checks won’t do much damage to your credit score, it’s wise to know whether you’re likely to qualify prior to applying — especially if you plan to apply for other loans, like a mortgage or car loan, in the near future.
Should you get a rewards credit card?
Is it time to apply for a rewards credit card? If you don’t already have a good rewards card in your wallet, you may be leaving money on the table — especially if you travel frequently, buy a lot of groceries, pump a lot of gas or make a lot of retail purchases that can earn you points.
If your budget matches the average household budget, you’re probably spending about $5,700 per year on groceries and a little more than $3,600 a year on restaurants. By applying for one of the best credit cards for groceries, you could earn as much as 6 percent cash back on eligible supermarket purchases. Additionally, using one of the best credit cards for dining out means you could earn 3 percent to 5 percent cash back on restaurants and takeout.
There are a lot of high-earning rewards credit cards with specialized bonus categories, so take the time to research your options and choose the rewards card that might be best for you. If you’re planning a vacation in the near future, for example, you should consider a travel rewards card.
Rewards credit card alternatives
While most people will probably want a credit card that offers rewards, it’s worth noting that some non–rewards credit cards have their advantages.
As an example, let’s assume you have existing credit card debt. In that case, you might be better off prioritizing a card with a long 0 percent balance transfer offer over a card that earns rewards.
The Citi® Diamond Preferred® Card may be a good fit for a situation like this. This card doesn’t earn rewards, but it does offer a 0 percent intro APR for 12 months on purchases and 21 months on balance transfers. After that, the variable APR will be 18.24 percent to 28.99 percent, based on your creditworthiness. Balance transfers must be completed within four months of account opening to qualify for the promotional rate.
This makes the Citi Diamond Preferred one of the best balance transfer credit cards on the market — and likely a much better money saver (for someone with credit card debt) than a cash back card.
The bottom line
Though credit card rewards have their pros and cons, applying for a credit card that offers rewards is generally better than applying for a card that doesn’t. If you aren’t maximizing your credit card rewards, you’re missing out on money you can put toward travel bookings, statement credits and more.
If you’re on the hunt for the best rewards credit card for yourself, consider using Bankrate’s free CardMatch tool to find a perfect match for your credit history, shopping habits and financial goals.