In times like these, it’s important to save money every way we can. Yet one of the simplest ways to save is often ignored… your credit card. The reward programs which are on the market have changed quite a bit over the last few months, so if you haven’t looked at what’s currently available you need to, because the latest rewards card offers can save you money in a multitude of different ways.
Let’s take a look at the three most compelling reasons to get a rewards credit card. Reason #1: Record-high signup bonuses In the past you were lucky to get $50 as an incentive, however that’s nothing compared to what’s being doled out these days. Right now the credit card industry is spending an unprecedented amount of money to acquire new customers… paying YOU massive bonuses of cash and points. Why are they doing this? Because during the “Great Recession” folks were cutting up their cards left and right. In fact, by some estimates the number of credit cards in circulation decreased by one-third during this period. So now banks are essentially going for a “land grab” to win back all those lost customers. Furthermore, the recent Durbin Amendment (which caps processing fees on debit cards) makes the credit card division even more lucrative for banks. However you need to realize these all-time historically high offers won’t continue forever, so make sure you snag them while they are still available. Need a recommendation? Check out these great card offers from Discover.
Reason #2: Generous cash back programs I’ve met many folks who forgo a cash back card, because they think it won’t be worthwhile since they’re not big spenders. They are really losing out on free money, because even average (and below-average) spending will earn you a nice payoff over time. Let me give you an example:
Let’s say this was your monthly spending: $400 on groceries, $100 on gas, $50 on eating out, $25 on entertainment, and $275 on everything else (medical, car repairs, clothes, car insurance, etc).
In one year you would have spent: $10,200. If you were earning just 1% cash back, that would equal an extra $102.00 in your pocket! Better yet, if you were earning 2% to 5% on some of that spending, you would be saving hundreds of dollars per year!
Now here’s the ironic part… the cards which offer you the highest cash back are usually free! The expensive high-end credit cards actually have lower cash back! For example, you can apply for the Discover More and get up to 5% cash back with absolutely no annual fee. On the other hand, the expensive $450 per year Platinum American Express rewards are horrible for cash back, because the 1 point per dollar it gives is only worth around a half-penny when the points are redeemed for cash. That means the completely free Discover More card can literally earn you up to 10x more cash back than the Platinum American Express card, though you may want to check out other AmEx cards.
Conclusion? Stick with the free cards like what Discover offers to get the best cash rebate!
Reason #3 – Extra opportunities for more savings
Okay so we’ve already gone over how just average spending can earn you hundreds per year in cash back, but did you know there are additional opportunities to earn even more money on top of that… all without having to spend more?
This is made possible through the online “malls” which most credit card companies offer these days. Basically they work like this: You login to your credit card account, click on the mall, and from there you will see links to hundreds of popular retailers. Simply click on the store you want to buy from and it will take you directly to that store’s official site. Just shop like normal and you will earn additional points/cash back (which is on top of the cash back your card already pays you normally).
The reason the credit card companies can do this is because they get paid a commission from the retailer for referring them your sale. So in turn, the credit card pays you back a chunk of that money in the form of extra rewards.
However it’s important to understand that even though just about every credit card company offers these programs, they are not created equal. The bonus you will receive will vary greatly between the card issuers. For example, you will not get the best deal from the two most heavily advertised programs: Chase “Ultimate Rewards” and Bank of America “Add It Up”. By far the most generous program is that which is offered by Discover, known as the “ShopDiscover” program. It gives you a bonus that’s up to double, maybe even triple what some of the other guys pay. Discover pays you an extra 5% to 20% at over 175 top internet retailers such as Target.com, Walmart.com, BestBuy.com, FinishLine.com, FootLocker.com, and tons of others.
A lot of people like to portray credit cards as being bad. But if you use them with discipline and pay your bill in full every month (this is critical!), the amount of money a good rewards program can save you is substantial. To compare the latest deals, check out these rewards credit cards.
This guest post was contributed by Mike from Credit Card Forum.