These days, it can really pay to have a credit card or two. Many credit cards offer rewards that can help you save money or can be redeemed for products. Some of the most popular reward cards allow their users to earn airline miles, cash back, gift cards, savings on gas, and more.
But as the old saying goes, "Nothing is life is free." This holds true for rewards cards as well. Most of them have fees, and some offer rewards that are notoriously difficult to redeem. Before applying for a credit card based on its rewards, make sure you do a little homework first and ask yourself a few questions.
Ideally, a reward card will have no annual fee. However, this is typically not the norm. It's common for rewards cards of all types to have a once-yearly fee that shows up on your statement each year. If this is the only fee, and it's reasonable (most are under $100), don't fret.
But if the card includes other fees, such as processing fees, monthly fees, or exorbitant annual fees (such as Visa Black’s $495 annual fee), it’s probably best to skip it and continue shopping for something more reasonable.
While you’re looking at fees, make sure you look at the interest rates as well. As always, the lower the interest rate, the better. This is particularly true if you don’t plan on paying off the balance every month.
Before you decide to spend money every year for your card, make sure you know how easy it is to redeem rewards. For example, some airline miles credit cards impose blackout dates for customers who redeem their points, making it impossible to travel on popular dates unless you actually purchase a ticket. The Southwest Airlines Rapid Rewards Card, for example, offers no blackout dates for those using their points to purchase flights.
You should also look at how the rewards are redeemed. The Citi Diamond Preferred card is one card that accumulates points, but must be redeemed through online auctions that can make it difficult to actually win.
Another thing to look for when shopping for a card is whether or not the rewards have an expiration date. If the card you’d like places an expiration date on their points, make sure it’s a reasonable one with parameters you can work with. Otherwise, your hard-earned rewards will end up going to waste.
A reward credit card may sound appealing, but ask yourself whether or not you’ll really be able to earn and then use the rewards before you apply for the card. If you rarely use a credit card, or the card requires a lot of points (and spending!) before you can actually redeem them for anything, you could end up paying for the annual fee without getting much, if any, of a return.
Reward credit cards can help you stretch your dollars, earn perks, and even put some extra cash in your pocket. However, make sure you do your research before you apply for a rewards credit card so you know exactly what to expect.