Using a rewards credit card over a debit card can take your everyday purchases to the next level. The best rewards credit cards offer cash back or points in exchange for your spending, which gives you more room in your budget for dream trips. Here’s how a rewards credit card works and how you can use one to your advantage.
A rewards credit card is one that gives users incentives when they make qualifying purchases. Rewards vary by card issuer and a card user’s spending habits. Some cards reward you more for spending in specific categories. Many rewards credit cards come with a special sign-up bonus offer after users hit the stated spending limit.
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How Cash-Back Rewards Work
Many cards offer special rewards bonuses on specific types of purchases. These vary by card, so it is smart to look for one that will reward you the most for your spending habits. Cash-back cards offer rewards in three different ways:
Flat-rate cards have a set rate, usually 1% or 1.5%. You earn this flat-rate on virtually all of your purchases, from groceries to gas to airline tickets. This type of credit card earning simplifies the process, but it also leaves a lot of rewards on the table when compared to other cards.
Tiered rewards cards offer both a flat-rate spending rate of 1% or 1.5% on some categories and a higher reward rate for select categories, such as 2% back on dining or 4% back on gas purchases. These cards are extremely beneficial for maximizing certain areas of your spending. One downside with these cards is that if you apply for a card that offers higher cash back in a category you don’t spend a lot of money in, such as travel, you aren’t going to see a huge difference over a flat-rate reward card.
Rotating credit cards offer rotating bonus percentage on specific categories during specific times of the year. These cards usually come with a standard 1% rewards rate and a 5% reward rate on the quarter’s special category. This could look like 5% back on gas January through March and then 5% back on groceries April through June. These rewards are also capped at a certain purchase amount, such as $1,500.
What Determines Bonus Rewards?
Bonus rewards are typically set by the issuer, though some cards allow users to select between two or three bonus category choices. Rewards credit cards that are branded under a specific airline or hotel chain typically give the most bonus rewards for purchases made through them. Additionally, many credit cards offer promotional bonus offers for spending at a specific retailer.
How to Redeem Cash-Back Rewards
Cash back gives card users the most flexibility and most cards offer this option. Of course, if a point- or mile-based card offers the chance for you to trade in your points/miles for cash, you will probably see a lower monetary value over using the points/miles towards travel. Card issuers make it easy to get your cash-back rewards.
Here are a few options they allow:
- Statement credit
- Cash transfer directly into your bank account
- Some cases a check mailed to your home (this might require special contact or an additional fee)
- The ability to use your cash reward on popular retailers, like Amazon, once you link your card
How Travel Rewards Work
With a travel rewards credit card, you’ll earn points or miles with every purchase, which can then be redeemed for your future travel plans. General travel cards will earn points or miles back on virtually every purchase, regardless of the airline or hotel chain.
Co-branded travel cards, the ones that align with a specific airline or hotel, will reward users with more points for loyalty spending. This is beneficial if you are loyal to one airline or hotel chain or if you want to reap the additional benefits these co-branded cards bring, such as free checked bags or a free hotel stay on your card anniversary.
Travel reward cards are best for those who travel frequently because they will earn more points on trip expenditures and have an easier time redeeming earned points for their desired destinations. If you love the idea of using your points to travel more but don’t actually travel much yet, stick with a popular rewards card instead to rack up the points faster.
What Is a Point or Mile Worth?
Generally, points and miles are worth one cent. Therefore, you will need to spend $1,000 to earn $10 in rewards. However, using your points or miles wisely can help you redeem them for two to three cents per point.
For example, choose a last-minute flight or a flight during the holidays, and your points could be worth less than one cent each. On the other hand, redeem your points for a less popular flight during off-season and your points can be worth three cents. Always calculate the flight you want to book to make sure you are getting the maximum worth for your points.
How To Redeem Travel Rewards
Many cards will allow you to redeem your travel rewards one of three ways:
- Cash back/statement credit
- Travel purchased through the card
- Transfer points to partner hotel or airline
These three methods are what distinguish the card users who get a few hundred dollars back in cash each year with those who go on trips for free. If you request your travel rewards as cash, you aren’t going to see the best return on your points. Travel purchased through your card issuer’s portal can result in great travel deals, but take time to research the current transfer partners.
Some cards offer one-to-one transfers on travel partners, which means you can move all of your points over to an airline. Booking a flight directly through the airline using airline points could cost you fewer points than booking the same flight through your card’s travel booking site. Transferring points to partners is also a great way to pool together points.
Say you already had points on your Hilton Rewards program from staying there earlier this year. You don’t have enough points to earn a free room, and you don’t want the Hilton-branded credit card to get that free room either. If your travel rewards card offered one-to-one transfers to your Hilton Rewards program, you can then combine your points for that free room.
How To Choose the Reward Card That Is Right for You
With so many different reward cards and travel rewards cards out there, how do you know which is right for you? The easiest way to know which card is best is to evaluate your spending.
Where do you spend the most money? Once you know where your money is going, you can choose a card that will reward you the most in that category of spending.
It is also a good idea to consider how much time you want to invest in your reward card. Do you want to keep up with rotating category bonuses and make sure you are getting the best flight deals for your points? Or would you rather something easier like a card that earns 1% cash back on every purchase?
There is no wrong answer, but you need to know these answers to understand which card will best benefit your lifestyle.
Reward Credit Card Risks
Earning rewards for spending money you were already going to spend — what could go wrong? While credit card perks are an amazing way to stretch your spending power, it is also easy to go overboard with buying.
If your reward credit card is going to put you into debt, there is a good chance the interest paid on the debt will negate any rewards. This pressure to spend is multiplied when you are trying to meet a spending limit for a sign-up bonus. Dropping $5,000 in three months on purchases you wouldn’t have made otherwise can create more financial stress. You might have earned $500 worth of free travel, but is it worth scrambling to pay off $5,000 of debt? Consider if you are in a healthy place financial to complete sign-up bonuses before committing to a card.
Whichever rewards credit card you apply for, make sure it is the right one for your spending habits. Not sure which card to apply for? Take a look at our Credit Card Hub for more ideas and reviewers.
How To Compare Rewards Credit Cards
Still not sure about which rewards cards are right for you? We get it. Choosing a credit card that meets your needs is important, which is why Slickdeals’ Credit Card Hub helps you compare the benefits of different cards, search credit cards by rewards categories and explore cards by their issuers — all to find the best fit for your wallet.
Most Popular Rewards Credit Cards
To make things a little easier on you, we’ve put together a list of rewards cards based on what they’re best known for. Depending on what you’re looking for, these categories can help you find the best card for you.
*Review the methodology Slickdeals’ credit card experts use to evaluate and determine the best credit products in various categories.
*Jump to the most frequently asked questions about rewards credit cards.
1. Best for Premium Travel: Chase Sapphire Reserve®
2. Best for General Travel: Chase Sapphire Preferred® Card
3. Best for Choice of Cash Back: Bank of America® Cash Rewards credit card
4. Best for Flat-Rate Cash-Back: Chase Freedom Unlimited®
5. Best for Tiered Cash-Back: Blue Cash Preferred® Card from American Express
6. Best for Airline Rewards: United℠ Explorer Card
7. Best for Hotel Rewards: Hilton Honors American Express Surpass® Card
8. Best for Business Travel: Ink Business Preferred℠ Credit Card
9. Best for Business Cash-Back: Ink Business Unlimited℠ Credit Card
Methodology: How We Chose the Best Rewards Credit Cards
We chose our best rewards credit cards based on the total value they offer to cardholders through ongoing rewards, sign-up bonuses, 0% APR promotions and other perks. We also broke the cards down into clear categories that highlight features that credit card users are typically interested in — for example, premium travel vs. general travel, flat rewards vs. tiered rewards and so on.
While some cards charge annual fees, we only picked ones that make it easy to make up for them with the value they provide. Before you apply, though, take some time to compare these cards with other top credit card offers to make sure you get the best fit for you.