Are you using your rewards credit card to the fullest? Rewards credit cards are excellent financial tools and are best when you maximize the benefits. But to do that, you’ll need to learn how to get the most value out of your credit card rewards. That means not only earning but redeeming your rewards as well.
- How to Get the Most Value Out of Your Credit Card Rewards
- Key Questions to Consider When Choosing a Rewards Program
- How to Manage Your Credit Cards
- Final Thoughts
According to a 2021 study by the Bureau of Consumer Financial Protection, the majority of credit card purchases are on rewards cards, even for those with poor (subprime) credit. In fact, credit card holders considered “subprime” made more than 60% of credit card purchases with rewards cards. More importantly, the same study also found that nearly 70% of rewards credit cardholders are sitting on unused cash back, points or miles.
How to Get the Most Value Out of Your Credit Card Rewards
Maximizing both earning and redeeming credit card rewards starts with choosing the right mix of cards. They should line up closely with your spending habits, as well as provide the type of rewards you are likely to redeem regularly. Here's how to do it.
Choose Credit Cards That Match Your Spending
This step is mission-critical if you want to maximize rewards. To do that, you’ll need to choose the best cash back credit cards in the categories you spend the most in. Choose one or more cards that provide the most generous rewards in your preferred categories.
For example, the Blue Cash Preferred® Card from American Express pays 6% cash back on up to $6,000 per year in grocery purchases. That’s a net benefit of $360 if you spend the full $6,000 using the card.
You can then add the Capital One SavorOne Cash Rewards Credit Card to earn 3% cash back on dining and entertainment. And if you’re a frequent user of Uber and Uber Eats, you can earn 10% cash back when you charge those purchases on the same card.
Decide on the Number of Cards You'll Carry
To control debt, some consumers limit the number of credit cards they have. But if you want to get the most value out of your credit card rewards, having multiple cards can work to your advantage.
For example, you can earn more rewards if you have credit cards that specialize in specific spending categories.
There’s a combination within credit card families that’s sometimes referred to as a “trifecta.” That’s where you have three credit cards from the same issuer, each serving a different purpose.
One example is the Chase trifecta. You can use the Chase Sapphire Reserve® for travel to earn 10X points on hotels and car rentals, as well as 5X points on other travel purchased through Chase Ultimate Rewards. By adding the Chase Freedom Flex(SM) to the mix, you can also earn 5% cash back on up to $1,500 in rotating quarterly spending categories. And if you add Chase Freedom Unlimited® you’ll earn unlimited 1.5% cash back on all purchases, all the time, and 3% on dining and drugstores.
The combination of the three credit cards allows you to earn rewards continuously on a wide variety of everyday spending.
Also see: Best Credit Cards for Everyday Spending
If you want to keep things simple and go with a single card, the Citi Custom Cash℠ Card pays 5% on the category you spend the most on each month, for up to $500 in spending each billing cycle, then 1%. Couples can each get their own Custom Cash card and double the spending limit on the 5% reward. For example, you can use one card for groceries and the other for entertainment, if those are the two biggest monthly spending categories in your household.
Choose the Most Valuable Rewards Program Specific to Your Needs
Just as it’s important to maximize the rewards you earn, you also want to easily redeem them. Cash back rewards are the most popular for being flexible. You’re not locked into redeeming them for specific purposes, like travel. Cash back rewards can also be redeemed for statement credits, which can help you reduce the balance on the card. These are the simplest types of rewards, and the ones you should go for if you’re unlikely to redeem rewards for other purposes.
Travel rewards cards generally offer the highest rewards and benefits. But those rewards only apply if you make travel purchases through the card issuer’s travel portal, like Chase or American Express. If you prefer to book your flights and hotels elsewhere, this type of rewards arrangement may not work for you. Also, if you rarely travel, a travel credit card isn't the best fit for you.
Finally, though it’s not always easy to determine, make sure your rewards are worth at least one cent on every dollar spent. This is not always the case, as some redeem at a lower rate.
Make Sure the Annual Fee Is Worth It
Some of the best rewards credit cards come with high annual fees. Those can be $500 or more. That isn’t a problem if you can afford the fee, and your rewards more than make up for it.
The benefits should outweigh the cost of the annual fee. For example, if you’re paying a $595 annual fee on a card that’s producing only $500 in rewards, that’s a net loss of $95 on the card. But, if that credit card also has unlimited airport lounge access and you use it often, it still may be well worth it to you.
Calculate the ratio of benefits/rewards to the annual fee on the credit cards you have or want to apply for.
On a card you already have, review the rewards you earned over the past year. Do they exceed the annual fee? If not, you may want to apply for a new card with different rewards, a lower annual fee, or both.
If you’re shopping for a new rewards card, estimate how much you’ll earn based on your spending patterns. Is it more than the annual fee? If not, keep on shopping.
Key Questions to Consider When Choosing a Rewards Program
Rewards programs come in different forms. Consider these questions for each reward type.
Airline Miles/Points Programs
- Do I travel enough to earn rewards to justify having this card?
- Does the airline have routes to the destinations I’m likely to take most frequently?
- Am I likely to book flights through this airline all the time, or would I prefer to fly with another airline?
- Are there any restrictions (times of the year, destinations, etc.) for earning miles?
- Are the miles transferable to partner airlines, and are those airlines ones I’m likely to choose?
- Is there an option to redeem miles in something other than travel (statement credits, other purchases, etc.)?
- What is the conversion rate of miles/points to cash?
Hotel Miles/Points Programs
- Do I make enough overnight trips to earn sufficient rewards to justify having this card?
- Do I prefer to stay at this hotel chain, or is there another chain I’d rather stay with?
- Are there any restrictions on miles/points redemption, like certain times of the year or lower quality accommodations?
- Are the miles/points transferable to partner hotel chains?
- Is there an option to redeem miles/points in something other than hotel bookings (statement credits, other purchases, etc.)?
- What is the conversion rate of miles/points to cash?
Credit Card Rewards Programs
- Does the card pay rewards for the categories I regularly spend the most on each month?
- Can I redeem the rewards in ways that match my spending preferences?
- How does this rewards program compare with competing credit cards?
- Can rewards be transferred to airline or hotel partners?
- Do I have a choice on rewards redemption (cashback, statement credits, specific purchases, etc.)?
- What is the value of reward redemptions? (Look for conversions of at least 1 cent per dollar spent, which should be listed in the credit card disclosure.)
How to Manage Your Credit Cards
Manage Your Rewards
If you’re not familiar with the rewards process, you’ll quickly learn it does take some effort. It’s not quite as easy as spend-earn-redeem. You’ll want to keep track of your spending and accumulated rewards on a regular basis.
Here are some tips to do that:
- Many credit cards have quarterly bonus categories. Set reminders so you can activate each category before a new quarter begins.
- Know how many rewards you can earn for each spending category.
- Know what you can redeem your rewards on – cashback, statement credits, purchase activity, or other methods.
- Check the fine print in your credit card agreement and find out if and when your rewards expire.
None of this is especially complicated, but it can take some getting used to if you’re new to the game.
Earn Your Spending Bonus
Many credit cards come with upfront spending bonuses. For example, you may be able to earn $300 cash back after spending $3,000 in purchases within 90 days of opening your account.
This is easy money, but make sure you can meet the spending requirement within the time limit. If you miss it by even one dollar, you’ll forfeit the bonus.
No matter how attractive the spending bonus is, if you believe you’re unlikely to meet the spending requirement, it’s better to apply for a different card with a spending threshold you can achieve. That will also prevent possibly running up unnecessary charges in an attempt to get the bonus.
Charge Everything You Can
This is really the simplest strategy to maximize your rewards. The more purchases you put on your card, the greater the rewards you’ll earn.
Naturally, you should concentrate rewards in their appropriate spending categories. If the card pays 5% cash back on groceries, use that card every time you go grocery shopping, up to the maximum spending limit permitted for that category.
On every other purchase, use a credit card that offers unlimited 1%, 1.5%, or 2% on all purchases.
The idea is to make sure you’re earning rewards anytime you spend money. However, don’t spend more than you can afford to pay off each month, which leads us to our next point.
Pay Off Your Balance Every Month!
If you’re charging everything on rewards credit cards, the risk of overspending is real. You may be forced to carry a balance and the interest you’ll be charged on that balance will offset the rewards you earn.
For example, if you have a credit card that earns an average of 2% in rewards each month, but also has a 24% annual interest rate, you’ll be subject to interest expense equal to 2% of the outstanding balance each month. In a worst-case scenario, the interest you pay exceeds the rewards you earn.
By paying off the balance in full every month, you can avoid this charge.
Is cash back better than points or miles?
It depends on how you intend to use your rewards. For most consumers, cashback is the preferred method because it’s the most flexible. But if you travel extensively, points or miles can give you more bang for your buck. For example, you may be able to transfer credit card points or miles to partner airlines or hotel chains.
What is the best rewards credit card?
The best credit card is the best card for you. That means it earns rewards in categories you spend in, and it provides redemption options that fit your preferences.
Are credit card rewards worth it?
Absolutely – credit card rewards are truly found money! But they only make sense if they match your spending patterns and can be easily redeemed. And they also work best when you pay off your credit card balance each month, that way you’ll avoid offsetting interest expenses.
Credit card rewards can be a consumer’s best friend. That’s because they provide rewards and benefits for doing what you do anyway – spend money. You owe it to yourself to get the right combination of rewards credit cards and to use them responsibly to maximize your earnings.