According to the Consumer Financial Protection Bureau report published in 2022, there were over 506 million credit card accounts held by American consumers as of 2021.
Another study by J.D. Power in 2022 shows that in 2021, American credit card holders left behind around $40 billion in unclaimed credit card rewards. It’s too surprising, but why do people do that?
Many don’t know how to maximize their credit card, plus they have lack of awareness, complexity of credit rewards program, and some don’t even consider whether maximizing Credit card rewards is worth it or not, which we will discuss in this article.
Types of Rewards
There are mainly three types of credit card rewards such as cashback, Retail points, and travel miles. Each of them offer unique benefits. Let’s understand them one by one.
Cashback: It allows you to earn back a few percent of the money that you have spent using your credit card. For example, if your card offers 2% cashback and you pay $100 for groceries or gas, then you’ll get $2 back. You can redeem this $2 cashback as checks, statement credits, direct deposits, etc. it’s an excellent way to save money when your budget is tight.
Travel Points or Miles: These are also known as airline points. In this, you can earn rewards for every dollar you spend on travel-related things, including flight tickets, hotel stays, etc. If you’re a frequent traveler, you can also receive bonus miles for travel purchases.
Using a travel-related credit card is an excellent way to save money on travel. Plus, you can also get perks like free checked bags, access to airport lounges, and priority boarding.
Retail Points: They’re also known as loyalty points. Usually, you’ll find them when you make retail or e-commerce purchases through your credit card. However, you’ll earn these points from a particular store, brand, or retailer. And later, you can use them to get discounts, free products, or special experiences.
How Credit Card Rewards Work
Generally, all credit card rewards programs work in the same way, whether you use them for traveling, shopping, etc. Let me explain to you one by one:
1. Earning Rewards
Being a credit card holder you’ll earn a specific amount spending on your purchase. Such as if you’re buying groceries from a specific store you’ll earn points or cashback, if you’re using your card on travel related things like hotels, flights, you’ll earn miles.
But how much can you earn?, should you even consider maximizing credit card rewards or not? Well! It depends on many things. Such as many credits perform better in a specific category for example The Platinum Card® from American Express is good for treveling.
Although The Platinum Card® American Express cards can be used at many different places to make purchases, you can’t really earn decent rewards everywhere except for traveling, so it’s not worth spending time on it or trying to maximize it to earn rewards.
There are specific cards for each category such as some best for treveling, and some are best for dining, gas station or groceries purchases.
Sometimes, you’ll receive Bonus points and miles when you newly sign up or meet a specific spending threshold.
2. Redeeming Rewards
Here are ways you can redeem rewards that you earn from spending money through a credit card:
- Gift cards
- Statement credits to offset purchases
- Travel bookings such as flights, hotels, etc.
- Cashback
- Merchandise
However, the value of your credit rewards depends on how you redeem rewards. For example, redeeming for travel may provide more value than redeeming for cash back.
3. Program Rules
Many rewards credit cards come with some rules and restrictions to earn rewards and redeem them. It may include expiry date, blackout dates for travel bookings, limitations on redemption options, or using rewards for a specific spending.
If you’re a cardholder, make sure to read program details. By doing so you can maximize credit card rewards value.
4. Co-Branded Partnerships
Many credit card rewards programs are co-branded with airlines, hotel chains, and retail partners, such as American Express (Amex) has co-branded with Delta Air Lines, Hilton, Marriott Bonvoy, Cardless, British Airways, etc.
It means, if you hold an American Express (Amex) card then you can earn and redeem directly with these brands, and the good thing is they’re often at higher values.
Therefore, you should choose a credit card based on your spending habits, there are debit cards which are best for travelling, some are best for online shopping, and some for dining out etc.
Benefits of Maximizing Credit Card Rewards
Here are three key benefits of maximizing your credit card rewards:
1. Saving Money on Purchases
We spend money on a regular basis such as paying utilities bills, buying groceries and other things, etc. So, if you use your credit card effectively you can earn rewards such as cashback and points, or miles.
And next time whenever you make a purchase you will get a discount. That’s a simple and effective way that can help you save money for your future.
2. Free Travel and Experiences
There are some best credit cards for travel which give you miles. And these miles can be used for flights, hotels and car rental services.
In this way you can enjoy more on your trip then you’ve paid for. It’ll not just improve your travel experience but will also help make your travel more affordable in future.
3. Building Credit and Financial Health
If you correctly use your credit card it can help you build a good credit score by the time. By doing so you will get more credit opportunities and better financial health.
Another benefit is it encourages disciplined spending and money-saving habits.
Costs and Risks of Reward Programs
Now you know there are many benefits of having a reward credit card. But the story doesn’t end here. There are also some risks that you need to know.
1. Annual Fees and High Interest Rates
Many rewards credit cards come with annual fees, such as $325 to own an American Express Gold Card, which comes with $400 in benefits, including dining credit, Uber Cash, Resy Credit, and Dunkin’ Credit.
Every credit card has different charges ranging from $95 to $550 or more per year. In other words, it’s the cost of membership in the rewards program and accessing credit card benefits.
Most importantly, you’ve to pay a high interest on rewards cards if you can’t make a payment in full on time. Therefore, it’s important to read whether your card’s value outweighs the annual fee and interest charges or not.
2. Potential for Overspending
Some people just do impulse buying for the sake of earning rewards, by doing so they tend to earn rewards but on the other hand, they’re wasting money on unnecessary things.
It becomes even worse when people are overspending money but not paying credit card bills on time. So If you own a reward credit card, make sure to adhere to your budgets and pay off the card’s balances monthly.
In the end, I’d suggest you not to spend money unnecessarily to earn rewards, that’s my personal experience.
3. Complexity of Rewards Structures
Many people can find rewards programs a little complex due to their rules, earning structures, and redemption options.
Moreover, Understanding how to maximize your rewards can be a little more complex when you’ve multiple cards and trying to get benefits from multiple rewards programs.
That’s one of the main reasons many Americans left billions of dollars in rewards unclaimed.
If you want to mitigate these potential risks, make sure to evaluate your card’s costs and benefits carefully. Besides this, always stick to your budget and avoid overspending just to earn rewards.
Always read the program rules and redemption options to make the most of the rewards.
Strategies to Maximize Credit Card Rewards
There are many strategies to maximize your credit card rewards. Here are three:
1. Choose a Card That Matches Your Lifestyle
You need to choose a specific credit card based on your spending habits, some are good for treveling and others are good for other purposes such as buying groceries, paying electricity, online shopping etc.
If you issue a suitable credit card for a specific category, you’ll earn more rewards such as points/miles. Make sure to naturally spend and avoid unnecessary buying.
You can first decide where you spend most of your money in a month. And according to that, you have to choose a card.
2. Understand and Capitalize on Sign-up Bonuses
Many credit cards offer welcome bonuses if you spend a specific amount within the first one or three months. Actually, all cards have different bonuses and conditions, so make sure to read that.
However, points/miles usually range between hundreds or even thousands. However, all have different spending requirements.
3. Track Rewards Through Apps or Tools
You can use mobile apps or online tools for monitoring your credit card rewards and making sure you never miss any earning opportunity.
By doing so, you can stay alert about your earnings and redemption.
Additional Strategies
- You can use multiple rewards cards to earn different types of points and miles. It’ll diversify your rewards earning potential.
- Claim your rewards when the value is highest, for example, premium travel experiences.
- Credit cards should be used with co-branded brands; this is also known as loyalty program partnerships.
When maximizing credit card rewards is not worth it?
There are a few instances when maximizing credit card rewards may not be worth it:
1. Misalignment with Spending Habits
If your credit card category doesn’t match your spending patterns, it’s not worth maximizing your credit card.
For example, You have a credit card which let you earn 2 points per $1 when spending on dining. On the other hand, if you use the same card for grocery purchase you earn only 1 point per $1 spending, it means you’re earning 50 percent less.
Here’s how it would work:
- Suppose you spend $100 at a restaurant, and you earn 200 points (2 points x $100 spent).
- Now, If you go to Walmart or any other store to buy groceries (Even though your card isn’t for grocery shopping, it’s for dining), In this case, if you spend $50, you’ll only earn 50 points (1 point x $50 spent).
After these two purchases, your total points earned would be:
- 200 points (from the $100 restaurant purchase)
- 50 points (from the $50 grocery purchase)
- Total you earned: 250 total points
The key things you can note are:
- The rewards value is different for different purchase categories, as I gave you an example (2 points per $1 on dining and 1 point per $1 on groceries purchases)
- If you use the credit card in the higher earn rate categories, you’ll faster you’ll collect reward points.
If you continue to use your credit card to purchase necessary things, you’ll get benefits. You can save money and redeem these points for gift cards, travel bookings, discounts, etc.
2. High Debt and Low Credit Scores
If you hold a credit but have a low credit score so instead of maximizing your card for rewards it’s better to improve your credit score. Because it’s not worth spending money for rewards while pushing yourself into debt.
In most cases, you’ll pay more interest on your credit card debt than you’ll earn from rewards. So, don’t focus a lot on earning rewards if you’re in debt; your finances in order should be your first priority for now.
But yes, you can use the reward card for necessary things, like groceries, which are a must. Forget travel, iPhone, nice dresses, etc, just to earn rewards.
3. Overemphasis on Rewards
Many people start focusing a lot on earning credit rewards, for which they often switch cards, open new accounts, etc. It’s really time-consuming.
Instead of this, you can focus on a balanced approach and not overshadow things like budgeting, saving, and investing in the stock market.
Conclusion
Maximizing credit card rewards is worth it because it offers many benefits but it shouldn’t be the sole driver of your financial decisions. Don’t make unnecessary purchases to earn rewards, don’t use it a lot when you’re in debt.
Build disciplined financial habits, and most importantly, before issuing a card make sure why you need it and then buy accordingly, if you want to travel then buy the specific card for this category.
Also, consider the card’s potential value. In many cases, if you can’t manage wisely, maximizing credit card rewards won’t be worth it. While if used wisely then it can be a rewarding financial strategy.
Are Credit cards for you?
If you’re issuing a credit card because you don’t have enough money to spend on necessary things, then in most cases, you shouldn’t own it.
Use the rewards card, when you usually have money in the savings account, and can also buy things using your debit card. Therefore, don’t pay for anything with a credit card unless you can’t pay with a debit card.
What are the main benefits of maximizing credit card rewards?
Some of the main benefits of maximizing your credit card rewards are getting cashback, points or miles on every purchase. And it can be used for merchandise, free travel or statement credit. Besides this you can and also get ancillary benefits like travel protections, extended warranties, and other perks.
How much time and effort is typically required to maximize credit card rewards?
Well! It doesn’t take a lot of effort and time to maximize your credit card, just make sure you’re using the right card for the specific category purchases and paying the bill on time. If you’ve multiple cards, you may have to monitor bonuses and track your spending.
Are there any downsides to maximizing credit card rewards?
The biggest downside of maximizing credit card rewards can encourage impulse purchases. Sometimes annual card fees can outweigh your rewards card’s value.
Besides this, you can face a bit of complexity in the beginning when redeeming the card’s rewards.
