This will not be a detailed list of which credit cards have the best miles/points and rewards, as we will leave that to the other guys. For one that is not the focus for this post, and two there are other sites that have dedicated themselves to this topic and are doing a great job at it. One such site is NerdWallet.com where you can do a detailed search based on fees, card preferences and credit score. To get the most out of the site be sure to read the cards full details to determine which card is best for you based on your spending habits. As for this article we will be focusing on why a credit card is a useful part of your rewards earning arsenal, as long as it is used correctly.
Now before we start, please don’t think that credit cards are the only way to earn rewards. There are other ways such as a Personal Travel Website that earns cash back on travel or through Travel Merchants, with their rewards and points programs. We also don’t want to suggest that people should go out and rack up a huge credit card bill, and not have the means to pay it back. We are hopefully all adults and capable of making decisions that are best for our situations. With that said, the best way to get the most from a credit card is to think of it like a tool that earns rewards on travel. Like any tool, if you don’t use it correctly, you are liable to get hurt, and financial pain can be just as painful as physical pain.
In order to use this tool correctly and get the most out of its rewards program, it should be used wisely and possibly with some restraint. What we mean is that in order to harness the power of credit cards rewards, as many purchases that would normally be made and paid for with cash or check, should be made with a rewards card. The upside is that a cards cash back earnings will be maximized, but as with every up there is usually a down. The downside being, that without self control, it is very easy to over spend, possibly defeating any rewards benefits. To ensure that you get the full benefits from all of your rewards, the balance should be paid off every time you get a statement. If for what ever reason you are not able to do this, you may want to rethink using a credit card as a tool for earning rewards. The reason being, that you will end up paying much more in the long run for just using the card, then you will ever make from any rewards program associated with the card. We will show you why with some very simple arithmetic.
In the interest of keeping things simple, let’s say you have a new credit card with a zero balance and no annual fee that you plan on using to earn some cash back rewards. The card earns a flat rewards rate of 2% cash back on all purchases, and comes with a finance charge of 12% APR fixed monthly. This example simply illustrates one point, and individuals should do their due diligence before using any credit card.
New Credit Card Rewards
Credit Card Balance$0
Fixed Monthly APR12%
So in our example, lets say you go on a business trip or a family vacation and spend a total of $3000, and charge it on your credit card. Whoohoo! You have just earned $60 ($3000 x .02) in cash back rewards. You congratulate yourself for being such a smart financial wizard, and rightfully so.
A month goes by and your back from your trip, everything went as planned and you had a great time, but then you receive your bill for $3000. If you decide to pay it off, then great! You have just paid 0% in financial charges and still earned 2% back on your purchase, good job.
Now lets say you don’t pay it off right away. For every month that the original $3000 is not paid off in full, you are expected to pay a finance charge of $30 per month [($3000 x .12) / 12 months]. So you can see how your finance charges can quickly add up , and how your cash back rewards can begin to dwindle into the nonexistent after only two months of non-payment.
Business Trip – Family Vacation
Credit Card Balance$3,000
Cash Back Earned$60($3000 x .02)
Finance Charge Monthly$30[($3000 x .12) / 12 months]
AFTER TWO MONTHS OF NON-PAYMENT THE $60 REWARDS = $0
The choice is yours, and hopefully we have shown you why and how a credit card can be a useful tool. We also hope that if nothing else, you can see why it is only beneficial to use a credit card, to earn rewards, when the balance can be paid off in full. With that we leave you with this quote from the Spider-Man movie, “With great power comes great responsibility”. We know it is cheesy, but we took the risk anyways because we found it so appropriate.