10 Tips For Maximizing Returns on Credit Card Rewards

1.  If you don’t pay your balance in full every month then you are not getting any rewards.

Since the average interest rate on a credit card is 14.43%, there is no reward anywhere in the world that will offer you anything more than 14.43%.  If you have credit card debt problems, you should focus on getting out of credit card debt instead of playing the rewards game.  For you, rewards are nothing more than a costly distraction.

2.  Always be on the prowl for new cards.

Last week I signed up for a new credit card – a Starwood American Express card.  Early in July of this year, they had a short sign up bonus of 30,000 points (instead of 10,000).  The best way to keep up with credit card offers is to check out www.freefrequentflyermiles.com.  I’ll also try and do a better job posting offers on this website.

3.  Take advantage of sign up bonuses.

The real value of credit card rewards is in the sign up bonus.  In fact, I’ll rarely get a card if they don’t offer a sign up bonus.  For example, the Chase Sapphire Preferred Card has enhanced earnings and rewards targeted towards travelers with an annual fee of $85 waived the first year. Earn a free flight – that’s 25,000 bonus points after you spend $3,000 in the first 3 months!

Compare that to Chase’s Sapphire Card that has no annual fee with a 10,000 point bonus.  If you’re going to spend $3,000 in 3 months, the Sapphire Preferred is the right card for you because you’d get an extra 15,000 bonus points.

4.  Call to request extra benefits.

Typically, when I have a card that has a first year free offer, I’ll call around the time of renewal and ask if they can wave the annual fee for another year.  They often say no, but they will offer some bonus points for me to stay on as a paid card member.  But, to date, I’ve never paid for an annual fee for credit cards.  The sign up bonuses on new cards are just too enticing.

5.  Calculate the value of your rewards.

If you have a cash back card, the calculations are easy – what is the cash back %.

If you have an airlines rewards card, you need to calculate the actual cost of your air travel.  From that total, subtract taxes and booking fees.  Then take that number and divide it by the number of miles required.

Here’s an example: From LAX – JFK, it costs $275 or 25,000 miles.  To use miles, you would pay $28 in taxes and fees plus a $25 booking charge.  The value of your 25,000 points saves you $222 (275-28-25).  222/25000 = .008.  Thus, each point is equal to just under 1% cash back.

If you have a hotel rewards card then you need to take the cost of the hotel divided by the number of points (because there are no extra fees for booking hotels with points).  If a hotel costs $125 per night and uses 4,000 points, then your points are equal to 3.12%% cash back.

Now, just use the card (or get the one) that offers the most rewards for each dollar spent.

6.  Consider carrying multiple cards.

This completely depends on your preferences.  However, I’ve found that multiple cards can really lead to some serious savings.  I have one card that I use overseas because it has a 0% foreign currency exchange rate.  I have another that I use when I book travel because I get bonus points.  I have another that I use for cash rewards when that is the best option.  I actually only carry one card.  I save the others in RoboForm and I only use them online.

7.  Get and use cards based on your travel preferences.

One of the biggest mistakes people make is signing up for cards based on the promotions without seeing how that promotion fits with their travel plans.  For example, Delta might be offering a 30,000 mile sign up bonus, but if they don’t fly out of your city, there is no point collecting Delta points.  Others might collect hotel points for an upcoming vacation before confirming that the hotel chain has a location in their city of choice.  You need to decide which points program is best for you.

8.  Never underestimate the value of hotel points.

Recently, I’ve switched over to focusing on accumulating hotel points.  I find that I get a much higher dollar return on hotel points than flight points.

9.  Cancel the card before paying an annual fee.

I don’t pay annual fees.  When I sign up for a new card, I open my computer’s calendar program and set a date about a month before the card’s annual fee renewal and remind myself to call and cancel the card.  Even if they do charge for the next year, you can still call and ask if they will cancel the card and return the money.

10.  Plan rewards travel early.

Collecting rewards is only half of the game.  The other half is finding the best way to redeem points.  One of the disadvantages of airlines points is how early you need to book travel (typically at least 10 months before international travel) to get the lowest redemption rates.  When you think about accumulating rewards, be sure to consider the frequency with which you can actually redeem those rewards.  For that reason, I usually give added value to cash back cards, hotel points, then airline points.

This article was featured in the carnival of wealth.

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