A commenter on a recent article of mine on charge card usage, suggested a follow-up post with an eye to uncovering the mysteries of credit card account rewards programs.

And in my research, I discovered it’s a murky world of points, rebates, fees, and interest rates out there! A lot of it comes down to personal choice, but here is some information to aid your plight for a suitable charge card account rewards program: 

Three types of rewards

There are typically three types of rewards programs: point-based, cash back, and frequent flyer miles. Some programs offer combinations of these rewards, with varying value for point redeemed.

Points-based programs involve accumulating points (based on the amount you spend), and then redeeming your points for merchandise from their catalogue. Points leave a little to be desired, since depending on what you redeem your points for you might not get a lot of value.

For example, Smart Money has an article on this topic , where they show you the Good, Bad, and Ugly of credit card rewards programs. Case in point for the ugly:

You could trade 39,200 Bank of America WorldPoints for a 30GB iPod, which retails for $249. Or you could use just 35,000 points to get a $350 check — enough to buy the iPod at your local electronics store. You’d come out roughly $100 ahead, and saved 4,200 points to use for another reward.

Gift certificates tend to be the best value for your points when flipping through the catalogue, and it is generally recommended that you stay away from the merchandise, since it is over-priced and lacking in quality. The gift certificate option also carries an added value advantage, since credit companies strike deals with the retailers to give them a deal on the gift certificates, whereas a dollar is a dollar when it comes to cheques or merchandise.

Cash back is most common, and offers quick rewards for your buck. However they can also have limitations; Some will only start to honour the cash back policy once you have spent a minimum amount of money, and yet others will cap the total amount of money they’ll reward.

Frequent Flyer Miles for airline tickets will sometimes give you the best bang for their buck, but can be a pain to redeem. Many issuers have blackout times, while others only designate a certain number of seats per flight as airline rewardable seats. If you don’t book your ticket early enough you can be out of luck, especially if you want a flight that’s commonly flown and redeemed for.

Saving for airline ticket rewards can also be tedious and take some time to accumulate for, and in this changing airline world, increasing fees and limitations could pose problems in the future. I have already noticed that one of the rewards programs I use have imposed a stipulation that if you do not use your points within seven years of the point being rewarded to your account, you lose it. So if you are saving up for a big reward (or on the flip side have accumulated tons of points over the years and haven’t used them), you may lose your chance.

Also, expect to pay out of pocket for the taxes, fuel surcharges, and other miscellaneous expenses (like a special booking charge if you redeem on the phone with an agent as opposed to online). But hey – a buck is a buck. To fly across the country (or around the world) for the cost of the taxes is rarely something to complain about.

Tips for the reward-hungry charge card account user

Pay off that balance!

As stressed in my previous article and related comments, using a rewards program is for responsible charge card account users. If you rack up a balance with an eye to getting rewards, and then spend the next 6 months or more trying to pay off the balance (and paying interest all the while), then the value of your rewards decreases significantly. Pay off those darn cards every month and treat your credit card like a debit card or chequebook – if you don’t have the cash in your account, don’t whip out the plastic.

Don’t get sidetracked by the smaller rewards

Initially it can take time to build up a big enough balance to start redeeming for the rewards you really want. Don’t lose patience and redeem your 800 points for an item of insignificant value when what you really got the card for was airline tickets, or special gift certificates. Most rewards programs have tiered systems that offer sweeter rewards (with better value) for those with more points. Your patience in saving up will be rewarded.

Get the card for the rewards you want

If what you want is an airline ticket to Hawaii, then search for the best card to get you there. I found a program (in Canada) where flights to Hawaii required fewer points than even some continental flights, and I chose that card with an eye to getting that ticket. It took time, but my boyfriend and I are now living (temporarily) in Hawaii, and got return tickets for a total of $76 in taxes for both of us (whereas paying in money would have been over $1,600 for both of us).

Look for bonus points

Lots of programs will offer bonus points depending on where you spend your cash or what you buy. Check online for bonus offers regularly, and spend wisely. You can often get triple the miles with a little research and effort.

Look at points conversion programs

Some programs are in cahoots with each other, and you can transfer or convert miles from one program to another. Be wary of those that charge a fee to do so, and take a close look at the conversion ratio. Sometimes they’re way out of whack such that is makes no sense to convert.

Specific programs vary from country to country (and sometimes even within regions), so I won’t go into many specifics with regards to individual program choices. It’s up to you to decide which rewards will ultimately benefit you the most. Just remember to use it wisely or else the interest fees will end up costing you more than you’re getting in rewards, and it’s a safe bet that that is exactly what the credit card account companies are counting on.

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Air Miles Credit Card Rewards = Junk

I spent a good part of my first 2-3 years of marriage trying to accumulate airline rewards points.  I specifically focused on getting NWA World Perks points.  We ‘cycled’ everything through the plastic.  By using charge cards and other strategies, I was able to accumulate a pretty decent amount of points with Northwest – without ever flying.

The biggest problem with airline miles and points is that they are only valuable in theory. Almost every time I’ve tried to redeem airline points, the flights I want are not available with the points I have.  While I accumulated enough points to fly round trip to Europe (four times), I have not yet used any of those miles (six years later).

The problem with airline miles credit card accounts is twofold.

1. Availability.  Unless you want to book 364 days and 6 hours in advance, you will probably find that the seats are all sold out.
2. Award seats are inflexible.  I could use them to fly if I left before 4 a.m. on a Wednesday and returned between 11:45p and 11:55p on a Sunday.

On my travel blog, I shared some recent frustrations trying to book travel with my points.

Honesty, at this point today, I think each and every one of those points was a useless waste of time and effort – my air miles are plastic junk. Perhaps when (IF!!!) I actually use them, my opinion will change.

One exception is the Southwest credit card which gives you enough bonus points to get a free flight.  And guess what?  With Southwest you can usually actually redeem your points.  For an ongoing basis there are better cards than the Southwest credit card account, but for the sign-up bonus you can’t hardly beat it.

Hotel Credit Card Rewards = Plastic Gold

Within the last two years, I’ve wised up and focused most of my rewards points on hotels.  For me, I’ve found they have the most lucrative rate of return.

Hotel points are much, a lot, a lot more valuable than air mile points and money back rewards.

Why are hotel points more valuable than air points or cash back?

Remember all those air points that I earned that were theoretically valuable?  Well, I have accumulated and already used a bunch of hotel points for some serious dollar savings.

Here are just a few examples:

Chase Priority Clubs Credit Card Rewards

One Card + One Purchase = $470.00 worth of rewards

To show you that you can actually get something of value from credit rewards, I  want to share how we got $470 worth of rewards from just one account.

My wife applied for the Chase Priority Clubs card.

Bonus: 15,000 priority clubs points + $20.00 credit.

Action: Made one purchase for $11.00

Action: Stayed two nights at the Holiday Inn Avon in Christchurch, NZ and one night at the Crown Plaza in Queenstown, NZ.  Each night was a Point Breaker offering, so each night cost us 5,000 points for a total of 15,000 points (same as our bonus).  Savings = $450.00 USD.

Action: After the vacation, she called and canceled the card.

Action: Chase sent us a check for $9.00

I also got the same card in my name, and this June I’ll be using 5,000 points to say at the Crowne Plaza hotel in Port Moresby, PNG.  The hotel costs over $250 USD per night.  At this value, each point is worth 5 cents or a 5% money back.

AMEX Starwood Credit Card

This has by far been the best credit card account I’ve owned.

In fact, my family is planning a trip to Sydney, Australia in June.  We’ll be staying five nights at the Four Points Darling Harbor. Because of our family size, the two rooms for five nights cost us 56,000 points.  The cost of those rooms would be $1,700 USD, so that represents about 3 cents per dollar spent or a 3% cash back.

In the last two years, we stayed 13 free nights in hotels.  Once we get through this summer travel, our total will be up to 19 nights free hotels in the last two years.  Most of those points come through hotel charge card rewards.

If you want to learn more about how to get free Starwood hotel nights using the Starwood credit card, just read this full detailed post.

Cash Back Credit Cards = Neither Junk Nor Gold

I call the money back cards the old faithful cards.  You guarantee use – it is cash after all.  They provide a reasonable return on your spending dollars and ultimate flexibility.

We just got the Schwab charge card account that gives us 2% cash back on every purchase (it’s a good thing too. FMF just posted 4/26/10 saying that the Schwab card is no longe available to new customers).  A nice rate of return, but extra nice considering the 0% foreign exchange charge card account fee.  Since most companies charge between 2.7-3% to use the card overseas, our Schwab card will save us 5% overseas compared to other options.

Depending on your occupation you may find better card offerings.  Here’s a list of the best military credit cards.

Now this is the time for my charge card account warning. If you use a credit card account, you must have spending guidelines.  You do spend more money with a charge card account than cash, but a credit card has nice added benefits that might make it worth the extra money.  If you are in credit card account debt no amount of rewards will ever make it worth it.

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#1 Cash: Reward Potential – Unlimited if it Helps You Stay within Budget

You might be thinking that you don’t get any money back with money.  Yes, that is true. But for certain people, the best reward will be the reward of controlling what goes out without any expectation of anything coming back to your pocket.

There is, in my opinion, no better way to budget than using cash.

With money, you can use one of two simple accounting systems.  The first is that you can use the envelope system where you allocate budgeted amounts to envelopes full of cash.  When that envelope is empty, there is nothing more to spend.

The second option is to count ATM visits or keep a notebook that records your running total of money withdraws.  This way you can answer the question, “how a lot do you spend” with confidence.

If you are a person who has trouble keeping your budget or managing your money, your best money back rewards system is going to be the cash in your pocket system.

However, buying EVERYHING with cash can be very annoying (which is why it is such a good budgeting system).

For nearly five years, almost all of my shopping has been with cash.  I’ve ended up at the store without any cash in my pocket and had to drive home to get more out of the safe – ugggh.  I’ve been forced to wait in a bank line for 15 minutes to get more cash out of the bank because the cash well had run dry.  I’ve had friends report that their purses were stolen when carrying around a lot of cash.  Forget about trying to buy gas with money – that is no fun.

Thus, even though I personally believe you may spend less with money (or not?) I’m willing to accept some extra payment for the convenience of plastic because credit card accounts do have advantages.

#2 Debit Card Rewards: Reward Potential – Up to 2% Cash Back

The PerkStreet Financial debit card provides a very good option to those who want to be getting extra rewards, but who don’t want to use a credit card account.

The card offers a solid 2% money back.

A couple of other debit cards that offer rewards includes the Capital One checking account debit card (earn points towards travel) and occasionally the ING Direct debit card.  Yesterday, Jason mentioned getting $1 back per transaction. Are there others?

However, I have a couple of things that hold me back (not to convert anyone) from using a debit card:

1. Debit cards do not have the exact same functions and features as charge card accounts (see credit card account vs debit card).  Especially when traveling overseas, I’d a lot rather there be an issue on my credit card account than debit card.  On several occasions, I have reversed a falsified charge with my charge card account in just a few minutes.  Good luck trying to do that with a debit card.
2. Extended Warrantee. Credit cards do offer an extended warrantee that is not likely to be matched by debit cards.
3. AMEX Promotions. American Express goes the extra mile to give added perks to its card users.  In the last year, they gave a $25 statement credit if you bought something worth $25 from a small business.  They gave you a $7.05 statement credit if you purchased something from iTunes.  They offered an extra 10% off Discover America vacation packages.  I bought one and saved $31.
4. I still think some charge card account rewards are more valuable.
5. About once a year I make purchases that are too large to cover with what is in my bank account (purchases to be reimbursed).  Credit cards simplify the process.

Again, let me say that my goal here is not to convert cash users to debit card users.  Nor is it my goal to convert debit card users to credit card users.  The reality is that your spending personality will determine which is your best rewards system.

#3 Credit Card Rewards: Reward Potential – 5% or More

Cash Back Credit Card Rewards

Depending on your spending habits, it is possible to get more than 2% money back with a charge card account.  Two examples are the Chase Freedom card which offers 5% cash back up to $1,500 in purchases in rotating categories.  There are high cash back categories of Amex Blue Cash which starts after exceeding $6500 in yearly spending.  Discover also had rewards cards that have rotating 5% cash back categories.

Airline Points

Most consumers estimate hotel points at a 1% money back.  That is true if you typically travel domestically.  However, if you fly first or business class overseas, the value of your points skyrockets.  Additionally, depending on your routing, you can often find rewards in the 3% range.

In his post, Jason mentioned that he’d need to spend $50K to earn an award ticket to South America.  That completely depends on the airline and the card you use to earn those points.

For example, until May 6th one could sign up for a British Airways visa and get 100,000 British Airways miles those miles could be used to fly almost anywhere in the world.  That’s after paying a $95 annual fee and spending $2,500.  However, on that $2,500 that would be like $1,000 worth of rewards.  Thus, the return on your spending ($2,500) would be more like 40%.

Or, as another example, with American Airlines you need 35,000 miles to South America.  If one were to use the Starwood American Express and transfer points to American Airlines miles, they would need to spend $30,000.  That’s a far cry from $50,000.  It would also be a 3.33% back, assuming tickets cost $1,000.

However, you need to be knowledgeable about the world of airline miles and points to be sure you’re earning points with the right program.  That’s why I wrote an eBook (available free of charge) called How to Earn Frequent Flyer Miles From the Comfort of Your Living Room.  In the book, I teach consumers what they need to know about collecting miles.  Also, I do offer free credit card selection consultations to be sure that consumers are using the most valuable card.  As an industry insider, I can usually match the best card with the best destination with the best program.  The biggest frustration that people have is redeeming miles.  Since I know about airline rules, restrictions, terms and conditions, and have access to flight availability tools, I also help people book flights using air miles (contact: htcheap at gmail dot com).

I’ll officially get off my hobby horse now!

Hotel Points

Hotel points avoid many of the things that people find frustrating about airline points.  They are easy to redeem, and you never have any associated fees to deal with.  In the last three years, we’ve enjoyed 15 nights worth of free hotels.  We have redeemed hotel points for in excess of a 5% return.  Since I’ve already taken up too much of your time defending airline miles, I won’t overextend my welcome.  If you’re interested, you can check out my post on earning free nights with Starwood points.

Conclusion:

The right money back system for you is going to depend a lot on YOU.

For those who have difficulty controlling their spending, the money sending system is best.
For those who have reservations about credit cards or fear overspending, then debit cards are the best system.
For those who pay off bills every month and want additional perks, then credit cards may be the best system.  Airline and hotel credit card accounts are great for those who travel a few times a year.

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Cash, airline miles, or rewards are what credits can earn you. If you want to get the most out of your credit company, you have to decide the right program and use your card often.

How to Choose the Right Program

Do you want a free trip to Hawaii or cash at the end of the year? A variety of reward programs is offered by credit companies, so decide the one you like best.

If you are planning to earn airline miles, pick a destination and make positive your rewards program covers that area. Some charge card companies partner with a specific airline while others offer generic travel miles.

Usually working out to 1% – 5% back on all your purchases are cash rewards. A sizable check is what you could end up with at the end of the year. However, cash rewards don’t apply to cash withdrawals or transfers.

For your purchases, points are offered by generic reward programs. To redeem those points, you can have them for products through the credit company or gift cards for stores like Home Depot, Toys ‘R Us, or Starbucks.

How to Earn Your Rewards

To truly get the most out of your rewards program, you will need to use your charge card often. When you pay for all your purchases like groceries, household bills, and prescriptions, you can use your charge card in order to earn an airline trip or over a thousand dollars in annually.

There are also special offers that are included in your monthly statement and these are what you need to look for. Sometimes you can double your points by using your card with a certain merchant. You can also receive coupons for additional savings at these places.

Be Sure You Won’t Get Caught

Reward programs usually charge a higher APR than other charge cards. To make sure you don’t get stung on finance charges, pay off your balance every month.

Every time you want to make a purchase, don’t just whip out your charge card and instead, start with a monthly budget. Stick with the plan you created regarding how much you can afford to spend. If you’re carrying a balance, then you need to determine how much it will cost you.

Not only can you earn rewards for your purchases, you can also improve your FICO rating by making regular, on-time payments. Being more responsible with your credit means increasing the chances of being qualified for more.

Disclaimer: Please remember to use credit cards properly. Improper use of credit cards can lead to serious financial hardships and bankruptcy!

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If you are on the look out for credit cards with rewards then the reward credit card accounts are just the fiscal instrument for you. If you get online and shop around for a good deal amidst the array of different cards with rewards available you will see that the reward credit cards come with features that differ from one provider to another, and in bonuses.

When you get on a shopping spree to choose reward charge card accounts you get what you are looking for, customized to specifically address your financial requirements. The instrument can be sued exactly the way you use any regular card, the only difference is that it has add-ons attached to it in the form of rewards. These rewards come in the form of some type of payback.

The reward charge cards are now being used by consumers from all walks of life. besides the corporate, even the person with no line of credit or one with poor credit or even those battling with bankruptcy are now benefitting with the cards. They include reward programs and give you the freedom to pick one among a host on display.

Reward credit cards allow you to earn reward points. These points can be picked up as travel points, rentals and accommodation discounts, low interest purchases, budget centric air miles, etc. It helps to go comparison shopping and invest in a card with a lower interest rate, but you should first and foremost know what to shop for. The card should suit not only your business, but personal lifestyle and consumptive behavior.

The reward credit cards bring along return programs that are very competitive. Hence it is advisable not to take the first offer that comes your way. You should take a look at the features and scope for new add-ons every month. When you shop online for a card hundreds of offers will be available, so ideally first hunt for potential resources that make the right comparisons for you.

If travelling is part of business or leisure the reward credit card accounts can do much for you with the frequent flyer rewards offered. The cards enable you to collect points when you travel and later convert them either into dollars or major concessions.

You also have the choice to translate the points into air travel miles and benefit from airline tie ups for easy hotel reservations and discounted transportation rentals. The reward credit card accounts bring with them huge discounts. You get to save on entertainment and shopping while you budget your travel expenses. The cash back offers range up to 5% value and when collected over a year, helps to pay off credit card account debt!

It does a whale of good to read through the fine print. Some reward charge cards carry interest charges that exceed the cash back scheme. In the case of some cards the discounts on purchase of gas helps a lot. Similarly many cards also cover discounts on items in select catalogues. Depending on your lifestyle preferences pick reward charge cards that offer secured rewards programs for students, entrepreneurs and people bound to home.

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