Personal Resource Center
Types of credit card rewards
- Cash back: Credit cards that offer cash back are very common. You earn a percentage on purchases you make using the card. You can then choose to cash out your points or apply them to your existing balance. Many cards offer different tiers of cash back depending on the purchase type. For example, you might earn 3% on restaurants, 2% on gas, and 1% on everything else.
- Travel rewards: Every time you make a purchase with your credit card, you earn points (based on the amount you spend) that can be used toward stays at hotels or other travel-related products and services. Some travel rewards cards are co-branded with specific hotels, which can then be redeemed for free nights, room upgrades, or hotel discounts, while broader travel rewards programs let you redeem points for things like rental cars, theme park admission, and other travel-related perks. These types of cards are great for frequent travelers since you often earn more points for travel-related spending, too.
- Retail rewards: These types of rewards can be earned with credit cards that are co-branded with a major retailer. Usually, you can earn rewards points on most purchases, with increased rewards for purchases you make through the specific retailer.
- Gas rewards: Like retail rewards, these types of cards usually let you earn some type of reward on regular spending, with double or triple points on gas station purchases. A gas rewards card can be useful if you commute a lot and have a relatively high monthly gasoline bill.
- Airline rewards: Airline rewards allow you to earn airline mile credits whenever you make purchases. You can choose either a co-branded card (where you earn miles with one particular airline) or a generic rewards miles card that lets you redeem miles with multiple airlines.
Should you get a rewards credit card?
While enrolling in a credit card rewards program can be lucrative, you shouldn't jump into a program without first performing some cost-benefit analysis. There are a few potential roadblocks to making a credit card rewards program worth it.
- Is there an annual fee? Some rewards credit cards charge customers an annual fee. Paying that fee can sometimes be worth it — that is, if the rewards far outweigh the fee. However, if you pay a high annual fee to get rewards that you don't use or the reward value doesn't significantly exceed the fee, it's not worth it — especially since there are plenty of rewards cards that don't charge an annual fee.
- Are there hidden costs in the fine-print? Be careful that your credit card provider doesn't charge you fees to redeem your points and that you can choose how best to use your rewards.
- Can you pay off the balance every month? The average credit card rate is 17.67% (as of March 2019),2 which means carrying a balance month after month can easily wipe out any rewards you earned. To ensure your rewards are truly rewarding, be sure to charge only what you can afford to pay off each month.
- Are you spending within your budget? Even if you're able to pay off the balance in full every month, credit cards still aren't worth it if you earn them by buying things you don't actually need. Credit card rewards should be earned by making purchases you need anyway, not by going out of your way to buy extra items in the name of more points.