The Magic of a Rewards Card

By Leni Parrish on November 11, 2009

Years ago, a rewards card was non-existent. Until Discover offered their cash-back program as a marketing tool, and everything else followed. Airlines started to hook-up with credit card companies to offer points for frequent flier miles. Cardholders get to earn rebates in various ways while being able to use flexible credit cards. Points can be added to contribute to a retirement plan, win tickets to a theme-park or get huge discounts for your next car. Frequent flier miles can also be converted into hotel stays or even restaurant meals. Others offer simple cash rebates, one which started it all. I know of someone who charges all of her purchases on her card to be able to accumulate free movie passes, and pays off all balances on time. That is actually the catch of a rewards card. It will only work for you if and only if you do not leave balances unpaid or you only pay a minimum amount monthly. Consider this: you accumulate rewards yet the finance and interest charges pile up in your statement. Do you think it is practical to be able to win stuff when in the end you have to pay your credit card company more for the charges you owe? The bottom line: if you keep balances on bills, then this card is not for you.

Looks tempting, right? That is actually the magic of a rewards card. The secret lies in being able to choose a perfect card and properly manage it to obtain the optimum deal. Experts note four ways to get started in this quest: know currency, know the limits, do the math, and know the extent of flexibility that is needed.

Knowing your currency means having knowledge as to how much each reward point is valued. For example, one frequent flier miles point is worth about two cents and is equivalent to 2% rebate. Anything that is lower than that percentage is not a good deal. It gives lesser value to your money. A good rewards card will not have an expiration period of your accumulated points nor will it limit the amount of rewards you could earn in a year.

Doing the math is matching the card to your spending. While heavy card users may reach the ceiling of rebates, light users may not earn enough points to make their card cost sensible. Lastly, knowing how much flexibility you need means considering primary goals in earning points. For maximum flexibility, cash-back options are best.

It is not wrong to get into a rewards program, but remember not to bruise your credit report only because you are after points.

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