Credit Card Rewards: Be Strategic

Credit cards are a staple in many households. They enable consumers to conveniently purchase goods and services now while paying for them later. When used responsibly, credit cards may help build a strong credit score. Paying off the balance in full each month will prevent the accumulation of any interest charges. And, often, consumers can enjoy rewards like cash back or travel perks.

According to the American Banking Journal, approximately 600 million credit cards circulate in the United States, with over 80% of adults owning at least one. This is the highest level of credit card circulation ever recorded.

While consumers must be wary of accumulating high-interest debt, there are ways to strategically reap card-member perks and benefits. One such advantage is earning credit card rewards.

Here are three essential tips to help maximize your household’s rewards:

Find the Right Credit Card

Just like cars, clothes, or investments, there’s no one-size-fits-all credit card. Most people choose a rewards program aligned with their spending habits. For instance, frequent travelers might prefer a card that offers rewards for purchasing flights, hotels, rental cars, fuel, and resort packages. Other households might benefit from cash-back rewards or credits on their next statement. Those who spend heavily at specific retailers like Amazon, Costco, or Walmart may prefer store-branded card offerings. Some credit cards even partner with charities like the American Red Cross or United Way, allowing you to donate reward points and potentially claim tax deductions.

Leverage Bonus Offers

All credit card purchases are not created equal. Card issuers typically offer three main bonus types: welcome bonuses, category-based rewards, and referral bonuses. Welcome bonuses are awarded after meeting specific spending thresholds within a set timeframe, such as spending $10,000 within six months of account opening. Issuers often provide higher points for certain purchase categories. For example, you might earn three to five times more points on flights, prepaid hotels, gasoline, or grocery store purchases.

Loyal cardholders may receive referral bonuses when encouraging friends or family to apply for similar cards. The reward point values vary based on the card, but they can be substantial if certain criteria are met. Using multiple credit cards, such as one for travel and another for cash back, can be a way to maximize various bonuses.

Pay Off Debt Monthly

While credit card reward offers can be enticing, it’s important to remember they come at a cost to the issuing bank. If you carry a monthly balance, consider a card with a lower interest rate because the interest charged is almost certain to erode your rewards. Credit card rewards should not replace other financial priorities like building an emergency fund or investing for retirement. Ultimately, responsible credit card use involves budgeting and maximizing spending potential.

If you have questions about your financial plan or would like to connect with our team, please schedule a complimentary consultation.

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This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.