General June 28, 2020 4

Why You Should Use Rewards Credit Cards

 

Hello Friends, I hope all of you are well today. I think credit cards can be great tools to achieve some returns on spending if used correctly. I want to emphasize that point again; you must use the credit card correctly and intelligently to be able to generate some returns on the money that you spend. Pay off the card balance every month, don’t use more than 20%-30% of your total revolving credit across all your accounts, and don’t spend more just because you get cash back, stick to living below your means. The overall point is be smart with your credit card because it can also be your greatest liability. The last thing you want to do is overspend on your card to the point where you can’t afford other things and have to carry a balance. This has a rippling effect because it will ultimately affect your credit score, which affects your cost of borrowing (higher interest rate), which will end up costing you more money to borrow. One of the ways that financially literacy comes in handy is knowing how to use different tools and methods to achieve returns. We know about investing as one way and minimizing expenses as another. Another way the financially literate and financially intelligent person gets another method of return is through rewards credit cards. These credit cards give you either cash back or travel miles when you spend money on the card. But Mr. Nahas, I thought you said we should minimize our expenses and not spend money? Ah yes, good question, I still stand by that. After you’ve taken a look at your expenses and minimized them, you could use cash back credit cards to earn some returns on the money that you do have to spend. Your car insurance, groceries, maybe your gym membership if you have one, and other necessary expenses are good examples to use credit cards on, just make sure that you follow the steps above about using the credit card intelligently. If you don’t use rewards credit cards right now, you could be missing out on some returns.  Let’s take at some criteria to use when evaluating rewards credit cards.

What type of reward are you getting?

There are two types of rewards credit cards that are on the market: Cash back and travel rewards credit cards.

Cash Back Credit Cards:  These credit cards give you a percentage of the money you spend back in cash. They don’t automatically give it to you in cash or a check form but rather it accumulates in your account until you decide what you want to do with it. You can use it as a statement credit and apply it towards the balance of the card, some of the credit card issuers let you transfer your accumulated cash back to your bank account, or you can use it to buy some rewards that the credit card issuer might offer through their partnerships with other companies. This type of reward is versatile, as in, since it’s cash you can use it like cash.

Travel Rewards Credit Cards: These credit cards give you a certain number of miles for each dollar that you spend. These miles accumulate in your account just like the cash back credit cards and when you redeem these miles, it’s usually a statement credit applied toward the travel expense. You can try to use it as cash, but the conversion won’t be the same. For example, 100,000 miles would usually be $1,000 when redeemed as a statement credit for travel expenses but if you decide that you want cash for some reason, it could turn out to be only $500 or whatever the credit card issuer’s conversion policy is.

Is there an annual fee?

You should place a lot of emphasis on this criterion. An annual fee is what the credit card issuer charges you to use their credit cards; this fee is assessed on a yearly basis. Annual fees for credit cards can range from zero to a few hundred dollars, and there are some that have thousands of dollars in annual fees. Usually, the greater the annual fee that the issuer assesses, the greater the benefits and rewards are for that credit card. If you are just starting off and don’t have a lot of expenses, a no annual fee credit card is the best option. If you travel frequently for work or just travel very frequently for leisure, a credit card with an annual fee might be worth it if the benefits outweigh the cost of the annual fee. The last thing you want to do is get a rewards credit card with an annual fee when, in reality, a no annual fee rewards credit card is better. What I would do is figure out how much you spend monthly that can be put on a credit card. I would then take your monthly expenses, multiply them by 12 to get your yearly expenses and then multiply the yearly expenses by the rewards amount; this gives you the total rewards based on the dollars you spent. Add any other monetary benefits that the card offers. Some cards give you annual travel credits or pay for other things, make sure to add it to your rewards amount. I would then take the total rewards amount and subtract it by the annual fee. Do this process for a no annual fee rewards card and an annual fee rewards card. Compare the two numbers and see if it’s worth having the annual fee credit card. I want to emphasize this in here again: don’t overspend, don’t spend more just because you are getting travel miles or cash back. Stick to your financial plan, so that you can achieve your goals.

What is the rewards amount?

This can vary from card to card. It’s important to check to see how the rewards are earned; some credit card issuers have a low flat rate rewards program or a high flat rate program. Some offer 1.5% cash back per dollar spent or 1.5x miles per dollar spent; they might offer less or more or a different way of earning rewards like categories. There are some cards that offer 4% cash back or 3x miles per dollar spent, but those cards usually carry a higher annual fee. Be careful though because it might not be for every dollar spent. What I mean by this is that some rewards credit cards only give you 3% cash back on every dollar spent at the grocery store or only on gas. Some travel credit cards only give you 3x miles per dollar spent at restaurants and travel related expenses. That’s why its important to check to see how the money has to be spent to get the rewards. Some rewards credit cards have categories like 4% on gas, 3% on travel related expenses, 2% on food, and 1% on everything else. Other cards have a flat 1.5% or 1.5x miles for every dollar spent regardless of category. Make sure to do an analysis of your monthly expenses and project the amount of rewards you get back depending on the rules that the rewards credit card has. This way, you are able to compare which card offers you the most rewards based on the money you spend.

Is there a bonus offer?

A lot of credit card issuers offer you an opportunity to earn a lump sum bonus if you spend a certain amount of money in a specified time period. The time period is usually three months or so to spend the money, and the minimum spending amount usually is $1,000 and up. The lump sum amount also varies by credit card issuer. The number we want to look at is the amount of money you have to spend to get the sign-up bonus. This is where people might get too excited, which turns dangerous. If your expenses don’t add up to that amount, you might be tempted to spend more just to get the bonus. My advice is to stick to your strategy, your goals, and your investment plan. The last thing you want to do is pile up debt or to start carrying a balance because you spent money on unnecessary things that are not part of your financial plan. There is a rewards credit card that offers unique way to earn a bonus, and you don’t have a minimum you have to achieve. If you would like to know this card, comment below and I can reach out to you and tell you more about it!

Are there foreign transaction fees?

Foreign transaction fees are additional fees that the credit card issuer assess you for using the credit card outside of the country or buying a product in a different currency. Although most travel rewards-oriented credit cards have no foreign transaction fees, it is still important to check and to make sure there are none. You never know when you may travel abroad, so it’s important to have no foreign transaction fees but not necessarily a deal breaker if it does have that fee.

Are there any other benefits?

A lot of credit card issuers offer extra features beside the rewards portion. Some benefits may include secondary rental car insurance (this type of rental car insurance covers what’s left of a claim only after your personal insurance is maxed out), TSA precheck reimbursement, travel statement credits, theft insurance, the ability to check your credit score for free and without penalty, and many other benefits that credit issuers may offer. Again, you have to see if the benefits outweigh the costs. A no annual fee credit card or a low annual credit card is probably the best option for most people though.

What is the interest rate and are there any other fees?

This will usually depend on your credit score. The lower your credit score, the higher the interest rate is and vice versa. If you don’t carry a balance on your credit card (which you shouldn’t), you won’t have to pay any interest. The interest rates on credit cards are significantly higher than other methods of borrowing. It’s usually between 15% to 27%. Also, most credit card issuers compound the interest charges daily if you carry a balance, so make sure to pay off the card in full every month. It is also important to check if there are other fees like balance transfers, late payment fees, and any other fees that the issuer might assess.

How is the customer service like?

This is an important part of the rewards credit card. In this section, it’s also important to figure out how to contact their customer service representatives. The most common way to contact customer service across all cards is to call the number on the back of the card. Each credit card issuer has the number on the back of the card and some other ways to contact them like mailing in questions to PO boxes, going into locations and speaking to someone, initiating a live chat online, or other ways they deem fit. It’s important to find out the ways you are able to contact them. Also, another important thing to note is that everyone’s experience with customer service might be different from time to time or wait times might be longer than usual from time to time; It’s okay if this happens once in a while. Don’t forget to take into consideration their customer service!

 

I hope that you picked up some useful information about evaluating a rewards credit card. As I described, rewards credit cards can offer some great rewards and benefits and is a great tool to add to your financial strategy as it gives you returns on the money that you are going to spend regardless. Always make sure to use the credit card responsibly, the last thing you want to happen is to add debt to your name. You may be wondering which credit card is the best for you, that is indeed a good question. I invite you to my credit cards page where I am going to try to add reviews about different credit cards and their pros and cons over time, so that you are able to choose which card is the best for you and your investment strategy. I want to leave you with one last thing, use the credit card responsibly. If you have any questions or need me to clarify anything, post a comment and I will reach out to you as soon as I can. Thank you, friends, for stopping by! Take care and see you soon!

 

Peace Out,

Mr. Nahas

P.S. Don’t forget to like, comment, subscribe, and to share this so I am able to help as many people as possible!

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Mr. NahasFinance:

4 Comments

  1. Atul

    June 28, 2020
    Reply

    i have done some phone recharges with reward points i get on my debit card. one should definitely take advantage of such cards.

    • Mr. NahasFinance

      June 28, 2020
      Reply

      Thank you! It is helpful to get points and rewards on things that you have to spend on anyways, might as well get a reward for it! Thank you for visiting and reading this post!

  2. Geri Lawhon

    July 20, 2020
    Reply

    I like my travel card and the miles do not expire. It has come in handy during trips and emergencies.

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