Credit card rewards mistakes to avoid
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- Leveraging credit card points and miles can help you score discounted (or even free) travel across the world
- Choosing the right loyalty program and credit card rewards for your travel habits and spending can help you maximize your rewards
- When you’re ready to book your award trip, do your research ahead of time and stay flexible to get the best redemption value
Credit card rewards offer hundreds of dollars worth of value annually — if you can get the most out of them.
There’s more to maximizing your credit card rewards than just earning and redeeming points or cash back over time. It’s good to not only be aware of all the benefits your card offers but also avoid habits that can end up costing you if you want to get the most from your rewards,.
To help you get started, here are a few common mistakes that could be cutting into your rewards card’s value.
Carrying a balance
When you don’t pay your bill in full each month, you end up accruing interest and fees. In almost all cases, these costs greatly outweigh the value of any rewards or cash back you earn.
Here’s an example using Bankrate’s credit card minimum payment calculator. Let’s say you have a rewards card that pays 2 percent cash back on every purchase and has an APR of 17 percent. If you spend $1,500 and pay it off in $100 monthly increments, it will take you 17 months to pay it off completely.
By that point, you will have incurred nearly $200 in interest charges, which is much higher than the $30 you earned in rewards.
The only way to truly maximize your rewards value — whether you earn cash back, points or miles — is by paying your bill in full every month.
If you can’t pay off your balance right now, don’t worry about rewards. Evaluate your budget to ensure you’re spending only what you can afford, and consider cards with an introductory 0 percent APR offer so you can focus on paying down your balance.
Holding onto cards that aren’t best fit for you
Beyond avoiding debt, one of the best ways to maximize the rewards you earn is by making sure your cards align with your spending habits.
You may have cards that are no longer working for you, or aren’t working as well as they could be. An airline card may have been perfect for you, for instance, until you quit flying and bought an RV. Or maybe you’re still using the card you opened years ago when you were just starting to build a credit history, and you could qualify for much better rewards now.
Not earning enough rewards to balance out the cost of the annual fee could also be a sign you have the wrong card in your wallet. Usually, sign-up bonuses will ensure you’re in the green in your first year, but don’t take that first-year value as a given. To make paying an annual fee worth it, you should make sure you’ll at least earn enough rewards (or use benefits) to cancel out the cost of the annual fee.
At least once a year, take time to reevaluate your goals and compare your spending to your card’s bonus categories to make sure you’re not missing out on better offers you could qualify for elsewhere.
Not using added perks and benefits
If you haven’t taken advantage of your credit card perks in a while, log into your online account and see what benefits you could be missing out on.
Even if you’re patiently letting your points, miles or cash back accumulate so that you can use them for a big redemption, you can usre card benefits in the meantime. For example, many travel rewards cards give free access to airport lounges or credit toward TSA PreCheck or Global Entry membership. Other cards offer free memberships to services like Instacart or Shoprunner. If you forget to use perks like these, you miss out on some of the value your credit card offers you. It’s worth reviewing your rewards policy from time to time to remember what benefits you have access to.
Choosing low-value redemption options
Generally, redeeming cash back is pretty straightforward: you can typically choose between statement credits or a check in the mail worth the value of your cash back balance.
But redeeming points can be more complex because the value per point depends on the redemption option you choose. For that reason, you should always do the math to make sure you’re getting the best deal.
Let’s say you have 100,000 points to redeem, and you’re deciding between cash back, a flight and a bunch of gift cards. To determine the best deal, you need to figure out the cash value of each option. Your issuer might offer 1 cent per point for cash back redemptions, which means your points would be worth $1,000 in cash back. That’s a good deal, but say you’re able to score a flight that would normally cost $1,200. That’s even more bang for your buck.
Usually, gift cards are one of the least lucrative redemption methods, but it never hurts to compare options. Plus, there are some situations when it makes sense to choose a lower-value redemption. If you don’t have any need for a flight but could use some help paying for holiday shopping, say, it might make more sense to go with a gift card.
Overspending to earn rewards
When planning to use your card’s rewards to the fullest, think carefully about what you have to do to make it work.
If you find yourself charging more than you want to in order to earn cash back or travel points, then it might be time to reevaluate your budget and spending plan. Start using your credit card like a debit card and spend only what you can afford to pay down — so you can avoid the high-interest debt balances that quickly outpace rewards.
Not maximizing bonus categories
If your credit cards offer boosted rewards in particular spending categories, you should do your best to use them accordingly. Writing your card’s bonus categories out on a piece of tape and attaching it to your card is one way to help you remember each time you’re at the register. You could also make a note on your calendar or notes app on your phone.
This is especially true if your card offers rotating bonus categories. One month you may get twice as many points for restaurant purchases. The next month, travel purchases may get that boosted rate. It can be disorienting, but credit card issuers usually announce their bonus categories in advance. If this is your situation, plan out big purchases accordingly so you gain more rewards for them.
When is the last time you redeemed the points you’re racking up? If you don’t remember, it’s probably time to start cashing in.
It can be tempting to save your credit card rewards points for a rainy day. While this strategy can pay off if you’re saving for something big, like an international flight, you don’t want to hoard points for too long.
Points lose their value as time goes on and prices become inflated. Not to mention, you don’t want to risk losing your points if you decide to close out your account or if your rewards expire because your account is inactive.
The bottom line
Even if you aren’t losing money on interest or annual fees, you still don’t want to let valuable benefits and rewards go unclaimed. If you want to better maximize your rewards value, take some time to get familiar with your credit card’s rewards program and make a plan for how you can make the most of it. That way, you can avoid common mistakes and keep rewards from slipping through your fingers.
If you aren’t feeling rewarded, consider getting a new card. The best rewards credit cards can put hundreds of dollars back into your pocket each year.