7 Credit Card Reward Tips Many People Don't Follow

By Craig Ford. Last updated 14 August 2012. 7 comments
Photo: michael_swan

As someone who advises a lot of people about credit card rewards, I'm often surprised by what the average person forgets to do when it comes to their rewards credit cards. Here are some helpful tips for making the most of your card rewards. (See also: 5 Best Travel Reward Credit Cards)

1. Conduct an Annual or Bi-Annual Award Card Audit

This is the biggest mistake people make. Ten years ago, you might have done some research and found that card XYZ was the best card (according to your needs) on the market. The result is that 10 years later, you're still using the same card.

Credit card reward earning rates and redemption benefits change. New card offerings can easily make old card offerings obsolete. Recently I was talking with a relative about his use of a certain card, and I realized that by re-evaluating the current card offerings, he would be able to earn an extra $100-$200 per year.

2. Don't Chase After Rewards When Payments Are Costing You More

It's human nature to think that we're smarter than most other people, and it's amazing the number of people who carry a balance on their rewards cards, thinking they are doing something smart because after spending $10,000, they get a $100 reward. The problem is that the $100 award is costing them $1,000 in interest . That simply doesn't make sense.

3. Don't Use a Point Card If the Value Is Less Than a Penny Per Point

Personally, I'm a big fan of airline and hotel points. I find that our family can easily get a 2-5 cent value out of each dollar point we spend on different credit cards. However, there are a lot of people who will redeem their points at below even a .05 cent value. That's a bad idea. If you're not going to redeem your points for valuable items, then you should just use a straight cash back card that will at least give you 1-2% on every purchase. If you're earning less than 1% value from your points, it's time to consider a new card.

Right now you could use your American Express Membership Rewards points to buy an iPod Touch for 71,800 points. The product retails for $359. That means you'd be getting a half a cent value out of each point. Interestingly, the iPod Touch is one of the best sellers at the American Express Membership Rewards site.

Everyone who used Membership Rewards to buy an iPod Touch would have been better off with any card that offered at least 1% cash back.

4. Always Know the Most Valuable Use of Your Points or Miles

Free is good, but more free stuff is better.

Remember how I said that it takes 71,800 points to buy an iPod Touch that retails for $359? Here are some other things you could do:

  • You could transfer your points to British Airways and pay 50,000 points plus about $100 in taxes and fees to fly business class return from Miami to Lima. That trip is pricing out at Orbitz starting at $1,500.  
     
  • You could transfer those points to Delta and have enough miles for almost three round-trip tickets anywhere in the US (three tickets would require 75,000 Delta miles). With the average cost of a domestic ticket over $300, that's nearly a $900 value.

That's a bad feeling when you realize you wasted your award points.

Don't spend all your time focusing on how you earn your points. Learn how to maximize using your points as well.

ARTICLE CONTINUES BELOW
What type of credit card are you interested in?
How much do you spend per month?
Do you carry a balance?

5. Develop a Credit Card Spending Strategy

If you own more than one awards card, do you know which is the best card to use for specific situations?

Certain cards offer extra points for gas, office supplies, restaurants, travel, and other specific categories. You must know the best ways to use your cards.

Right now I have three cards that I rotate. How, when, and where I use them is determined by the rewards potential by each use. A spending strategy doesn't just consider award benefits, but it also considers other benefits like warranty coverage, rental car benefits, and foreign currency exchange fees.

When purchasing electronics, American Express cards offer one additional year of extended warranty coverage. When renting cars, you should give consideration to cards that offer primary rental car insurance. And you don't want to spend a few thousand dollars on your vacation overseas only to find out that if you used a different card you could have saved hundreds of dollars in foreign currency exchange fees. Be sure to use a 0% foreign currency exchange credit card when traveling overseas.

6. Don't Overlook a Reward Card Simply Because It Has an Annual Fee

If you can get a good reward card that doesn't have an annual fee, then that's great. However, I've known people who could earn a lot more points by using a rewards card with an annual fee, but they refuse to do it out of principle, even when the rewards value far outweighs the annual fee cost.

Don't pay an annual fee if you're not going to get more awards for doing so. However, I've advised a lot of people to get an award card with an annual fee because they'll actually end up with more rewards value than the cost of the annual fee.

7. Focus on Diversity in Card Brands

If you've only got one type of card (American Express, Visa, or MasterCard), you'll quickly discover that not all retailers accept all cards. If you're going to have multiple cards, be sure that they are from different companies, as you'll be able to have the most flexibility to maximize the rewards. Often, the rewards are not just spending bonuses, but cards might offer different discounts the companies will run throughout the year.

As an example, every Friday till August 17, 2012 Visa Signature card holders get a free movie ticket when purchasing a ticket. American Express allows you to sync a card to get promotions through Twitter.

By having a diversity of cards, you'll be able to take advantage of all the best current offers each company is promoting.

What other important credit card reward tips do you think people don't follow?

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Guest's picture

Nice tips! I think your point about not overlooking cards with annual fees is important for consumers to remember. Although an annual fee is undesirable in most cases, reward cards that charge an annual fee often have the highest reward potential if you actually use the card (and pay it off!) on a regular basis...

Guest's picture
Russ

All good points. Personally I think the most important of all of them is #2, the one that touches on payments. If you're carrying a large balance, or any balance at all on a card, it can hurt or in some cases negate any benefit to earning rewards, regardless of what they are. Most people get all excited about earning points, are enticed by sign-up bonuses, and then end up carrying a balance even if that isn't their original intent. Unless you're in a situation where you can treat your card as cash and pay your balance off every month you have to look at the pricing. If carrying a balance is your reality the card's pricing is of equal if not more importance than the rewards structure.

Craig Ford's picture

Russ,
Thanks for highlighting the second point. It do quiver sometimes when I hear people talking about all the rewards they've earned when I know they've got credit card debt. It simply doesn't add up.

Guest's picture
Russ

Craig,

No problem -- unfortunately the voice of experience. It happens too with charge cards that carry annual fees. If you're paying a high fee on a charge card you also have to make sure that it's worth your time, meaning exceeding the break-even point on spend.

Guest's picture

I use my points for the annual membership fee.

Guest's picture

It is true that some reward cards with annual fees are good as long as you are able earn a lot of reward points. I had an airline card and I was able to earn free flights. The annual fee was not an issue.

Guest's picture

Another way to utilize your travel cards on flights is that many cards allow you to use miles or points to pay for a portion of the flight with a combination of points & top up dollars if you have 50% of the required points An example is say the reward requires 30000 points & you have say 15000 points or more use the points & top up the balance required with a cash payment usually so many cents per point This gives you a half price ticket or better & saves you money for the trip or other things Have used this strategy for many years & had a portion of the trip paid by rewards every year