An Introduction To Rewards Credit Cards
If you’re like most older Americans you have several credit cards and debits cards in your wallet and most of them are in some way tied to a “point” or reward system of some sort. Though they all seem to be interchangeable, there really is quite a difference in the various cards and what they offer you as a consumer.
First, it’s important to understand the difference between debit and credit cards. When you use a credit card of your own you taking out a loan for money that you do not readily have available. Debit cards on the other hand require you to have the money in your checking account. Essentially, a credit card allows you to borrow money in advance of earning it, while a debit card only allows you to use money you’ve already received and put into your checking account. One of the easiest ways to actually borrow money for just about any kind of purchase is to use a credit card. Most true credit cards are actually just instruments which allow someone access to a loan without putting up collateral. And because credit cards are actually “loans” to the user, there is an interest rate that is charged on money borrowed and not paid back within 30 days.
What Types of Rewards Do You Want?
There are lots of different kinds of credit cards, but “points” or “rewards” cards are among the most popular. Some cards give you reward points for buying certain products and you can then spend those points to receive additional prizes. If you can buy something with cash then you can often also get it for no cost by spending credit card reward points. There are reward programs for vacations, home improvements, electronics, amusement parks and of course airline miles. But you should be selective when picking a new credit card because not all cards are the same.
If you never travel, then applying for a credit card that gives travel miles is most likely worthless to you. Some rewards cards have a limited selection of services you can spend their rewards points for, but some have thousands of different goods and services. You will want to pick a rewards card that has a point system that you’ll use.
Some rewards cards will only give you reward points for certain types of purchases and some are less limiting and will give you points for any sort purchase. You may also want to watch for large annual fees just for having the card. Not all rewards cards offer the same points ratios and redemption plans.
Rewards cards are often the best credit cards because you can easily accumulate a lot of points in a short period of time. When used correctly rewards credit cards can give you lots of benefits and can actually make a big purchase or group of purchases much less costly. A lot of people purposely apply for rewards credit cards when they have a big or costly vacation or project planned. You can even start a small business on credit card loans, but the interest you pay will often be much higher than with a traditional business loan from a bank.
What Type of Credit Card?
The four major credit card types are Visa, MasterCard, Discover Card and American Express. There are, of course, others, but those are the major financial backers that will be accepted most places you visit. While Visa and MasterCard are accepted almost everywhere their reward and point systems vary widely because they are largely based on the bank that issued the card. American Express is widely seen as having the most generous rewards program out of all the credit card types, but there are obviously balance and payment limitations with American Express that don’t fit everyone’s lifestyle. Discover Card will pay you up to 1% back on all your purchases for a year which can be significant, but if you don’t use your card every day then it may not amount to much.
Deciding On A Rewards Card
Ultimately, you’ll want to decide what type of card best fits your own needs and lifestyle. Consider your interests, whether or not you’ll want to carry a balance, what sort of purchases you’ll be making and what type of rewards you want to receive. Also be sure to read the fine print! Some rewards programs only allow you to accumulate points for a certain period before they begin to expire. You generally want to try to avoid rewards cards that have a lot of limitations on how and when you can spend you points. Most rewards credit cards have annual fees these days, but they should be modest and shouldn’t amount to more than about $50 per year.