Making Credit Cards Rewarding

If you use a credit card, and you’re not enrolled in some sort of rewards program, you may be leaving money on the table. As you’re no doubt aware, many credit cards offer rewards programs for purchases made with that card. And as long as you're going to be using your credit card anyway, you may as well get some reward out of it.

There are three main types of credit card reward:

1. Travel Rewards

Just as airlines offer “Frequent Flyer” miles for buying flights, credit cards now let you earn miles for buying anything at all. Earning enough miles will allow you to take free flights, or at least pay for partial flights by reducing your bill by $50 for every 5,000 miles you use. If you travel on various airlines, you’ll want a credit card that offers fungible miles which can be used on any airline.

On the other hand, if you travel a lot and generally use the same airline, you’re probably better off getting the Rewards Card of that specific airline. In addition to the miles, proprietary cards tend to offer other valuable perks when using that airline. For example, the American Airlines AAdvantage Mastercard offers preferred boarding and a free checked bag for you and up to 4 travel companions. Given that American Airlines standard fee for the first checked bag is $30, this can add up pretty fast.

You may also find your miles go further (literally) when used on international flights rather than domestic flights—often this will double the bonus miles to dollars conversion rate you receive.

2. Points

Other cards use a point system which rewards you something like 1 point for every $1 spent. Many cards also offer bonus points when spending in certain categories, such as double points for money spent on groceries and gas. Points can be redeemed in each card’s online points shopping mall, although given that many cards allow points to be used at sites like Amazon.com, chances are good you’ll find something to spend on.

3. Cash Back

Cash back is not only the most attractive reward, but the easiest to understand. Cards in this category like the Capital One Quicksilver simply return you a percentage of cash back (e.g. 1.5%) on every purchase. Again, some cards will offer a much higher percentage for certain purchases, such as gas and groceries. These rewards programs tend to be the best if you can get them, but be aware that they tend to be attached to cards with a high APR.

For those looking to game the system, there’s some money to be made by juggling a number of cards to reap the benefits of all the signup bonuses, or even just paying for big group purchases with your rewards card and then being reimbursed.

But there are some caveats. Many of these cards have restrictions in fine print, where your rewards don’t kick in until you’ve spent $1,000 or are capped at $5,000 per year, or where points and miles may expire before you can use them. And it's easy to get distracted by rewards and lose sight of high annual fees, or the cost of carrying a balance. Remember, if your 1% cashback card has a $95 annual fee, and you carry even a small $400 balance at 26% APR, you'd have to charge $20,000 just to break even from rewards.

It’s worth trying to pick a card without a high annual fee, and you should always pay off your credit card in full every month to avoid carrying a balance. And while juggling multiple credit cards may earn you more bonuses, it’s also more difficult to keep track of all the annual fees and balances, which can quickly add up and cost you more than you’re earning in rewards.

The biggest reward you can get from any card is not paying them money.

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