Which Type of Rewards Credit Card is Right for You?

By Jay Cross. Last updated 17 April 2012. 2 comments

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Everyone talks about rewards cards.

We see them advertised on TV, plastered on the sides of buses, and stuffed into our mailboxes. In fact, we hear about rewards cards so often that they all begin to blur together. It’s become a buzzword used describe nearly every card under the sun.

Yet it’s important to realize that rewards cards are not all the same. There is actually a surprising amount of diversity within the market, such that two cards you think are similar (based on “surface indicators” like the APR or annual fee) might be night-and-day different from one another.

Compounding the problem is the fact that rewards cards are not tailored to individual consumers. They’re created by marketing teams and designed to appeal to as many consumers in a homogeneous group (say, “business travelers” or “students”) as possible. In short, the credit card companies don’t really know “you” at all.

That means it’s your job to sift through all of the many rewards cards you could pick and find the one(s) for you.

How Rewards Cards Changed the Rules of Picking the Best Card

Picking the best credit card was relatively simple before rewards cards came into existence. The best advice could be summed up in one-sentence truisms like “make sure your card is accepted everywhere” or “avoid annual fees” (which is horrible advice when evaluating rewards cards) and, of course, “look for the lowest APR.”

Credit cards were basically commodities, with very little to differentiate one from any other. Rewards cards changed all that by introducing new variables and rendering incorrect much of the standard credit card advice people followed before.

4 Major Types of Rewards Cards

First, you should understand that there is no such thing as a “rewards card” in general. Rather, there are cards that reward certain types of spending with certain types of perks or benefits. Brief summaries of each (as well as who should get which cards) are offered below:

Airline Miles Cards

Airline miles cards enable you to accumulate “miles” (or points) based on the flights you buy with the card. Over time (and with enough trips charged to the card) you can earn enough points to take entire round-trip flights for free.

This card IS for you if: you already were a frequent air traveler and would be, with or without this card. In your case, an airline miles card is icing on the cake—a way to get rewarded for what you already do and would have done no matter what. Even a high annual fee (say, $85) doesn’t matter because you’ll easily travel enough to earn it back—and then some—in points.

This card is NOT for you if: you fly once or twice a year but love the idea of getting “enough points for a round-trip flight just for signing up.” What the stewardess didn’t tell you is that after those initial complimentary points, you would need to spend tens of thousands of dollars per year on your airline miles card to earn another free flight. As SmartMoney reported in 2009:

“The Continental Airlines World MasterCard, for example, carries an annual fee of $85, and earns one mile per $1 spent. One mile is worth about a penny at redemption, so you'll have to spend $8,500 just to offset the fee.”

Infrequent travelers are virtually assured of not spending enough for the fee to be worth it (never mind accumulating enough points for free trips!)

Gas Rewards Cards

It’s no secret that gas prices have skyrocketed during the last decade. Sensing that consumers are feeling pain at the pump, credit card companies launched gas rewards cards which rebate anywhere from 3%-5% of the gas you buy on credit.

This card IS for you if: you have a long commute, frequently drive for pleasure, and/or drive a gas-guzzler of some kind. If anything about your lifestyle results in having to buy lots of gasoline, gas rewards cards are an excellent way to be rewarded for it.

This card is NOT for you if: you work from home, rarely drive for pleasure, and/or drive an extremely fuel-efficient vehicle. Personally, I’m a horrible candidate for gas cards because I drive a diesel-powered Volkswagen that only needs to be filled up once or twice a month!

Balance Transfer Cards

Credit card companies are well aware of the widespread debt problems that today’s consumers have. That’s why balance transfer cards (which offer you a 0% APR for 6-12 months after transferring a balance) have become some of the most popular offerings from banks and credit card companies.

This card IS for you if: you owe a staggering amount of money on one or more credit cards ($5,000-$10,000 or more) and believe you can pay a significant amount of it off during the 0% APR “teaser period.”

This card is NOT for you if: you have little or no credit card debt and therefore have no strong reason to care what the APR is (neither for the first 6-12 months nor anytime after.)

Cash Back Cards

Cash back cards are the closest thing to a rewards card that can appeal to just about anyone. As the name implies, these cards reward you by refunding a certain percentage (usually around 2%) of all your spending. That means, for instance, that spending $2,000 on your cash back card will net you $40 at the end of the month—simply for doing your spending on that card.

This card IS for you if: you are comfortable doing most or all of your spending with the credit card so as to maximize your cash back reward.

This card is NOT for you if: you hate using credit cards for anything other than when they’re mandatory (such as booking a flight, rental car, or hotel room.)

The Takeaway

The common theme here is ignoring the marketing-speak of the credit card companies and focusing intently on what each card can offer YOU individually. By taking a careful inventory of your lifestyle and spending habits, you can select the card that will provide the most rewards for what you already do—which is the whole point. Avoid the common mindset of impulsively signing up for a card that “sounds good” and then trying to change your behavior to benefit from it.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Guest's picture

One also must be aware of the ultra high end [ie the hilton's] rewards cards. These cards' annual fees can run into the 100s of dollars and as such, one must be sure that they will be spending enough to offset the high annual fees.

Guest's picture

I currently use a capital one venture card. I just bought tickets to europe from the usa for my wife and I. winning!