These days, credit card companies offer many types of rewards for their customers, enticing more people to open an account with them. In the past, credit cards were merely a way to pay for something if you didn’t have the money on hand— and they were usually used in case of an emergency. Now with credit card companies offering rewards on certain purchases, credit cards have become more of a primary source of payment and unfortunately have resulted in a lot of people going into debt.
However, with responsible use, credit card debt is completely avoidable and shouldn’t deter you from getting the right card. With that being said, here’s a look at some of the different types of rewards offered by credit card companies.
1. Cash Back Rewards
Cashback rewards are the most popular type of reward offered by credit card companies. They offer anywhere from 1% to 10% cash back on certain purchases, although the most common percentages are 1%, 2%, 3%, and 5%. Generally, these credit card companies will offer 1% cash back on all purchases, and a higher percentage on eligible purchases that fall under a certain category. The categories include:
- Restaurants/food and drink
- Home improvement
- Grocery stores
- Gas stations and travel
- Department stores
- Amazon purchases
The way(s) in which you can redeem these cashback rewards greatly depends on the credit card company you choose. Usually, the cashback is converted into a dollar value (as it’s advertised), meaning that if you spend $100 during one billing cycle you can earn anywhere from $1.00 to $5.00 in cash, depending on the cashback percentage. This cashback value can be deposited into your checking account, applied to your credit card statement, or used on a gift card— again, it varies depending on the credit card company.
2. Miles Rewards
Some credit cards— usually those owned by airlines— offer “miles” rewards, which correspond to the amount of money you spend on that particular credit card, and not necessarily the number of miles you’ve traveled with that airline. The good news is that the credit card is typically a Visa or MasterCard, meaning that you can use it to make a purchase wherever Visa and MasterCard are accepted— virtually everywhere— and not just at an airport. Generally, these cards offer one mile per dollar spent, and some may offer more depending on the type of purchase you make (i.e., under a certain category).
This type of rewards credit card is great for those who like to travel, especially abroad. It also makes it easier to rack up “frequent flyer miles”, which is how people used to earn free flights in the past. However, the majority of people don’t fly frequently enough to earn this reward the old-fashioned way, but airline credit cards are a great alternative. Keep in mind that as with any credit card, it’s important to read the fine print and understand exactly what your rewards are.
3. Points Rewards
The final type of rewards offered by certain rewards credit cards include points, typically with each dollar spent equal to one point earned. Unlike receiving actual cash (although some credit card companies allow you to convert your points into cash), these points can be used to redeem a variety of things, such as:
- Gift cards
This type of rewards system from credit card companies allows you to earn these rewards in multiple ways. Cashback and miles rewards usually only allow you to receive these rewards by spending money. On the other hand, points can be earned by spending money, meeting certain milestones or tiers (e.g., earning more points each time you hit a certain number), and referring friends to the same credit card company. Again, not every credit card company will offer all of these options, so it’s important to research different companies.
These days, credit cards offer you much more than just an emergency payment method. However, it’s important to keep in mind that not all credit card companies are the same, and you must do your research and look at more than just the rewards to determine which credit card is right for you. You should also look at what fees you may be charged, and the interest rates as well.
Finally, remember to be responsible with any credit card you may choose to get. Don’t spend beyond your means, and try to pay off the full balance each month. This helps keep your credit score high and can help you avoid credit card debt.