How To: Calculate Credit Card Rewards

Credit card rewards are an integral part of the credit card landscape.

However, not all credit card rewards programs are created equal.

There are dozens of different iterations and each one has its own little quirks.

Here’s what you need to know in order to do well with credit card reward programs:

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Realize They All Have Limitations

The first thing to understand is that credit card rewards programs are all limited in one way or another. There is no one perfect card for everyone. You will never find, for example, a card which gives you 5% cash back on every purchase for the life of the card along with airline miles and lots of concierge perks with no annual fee (and if you do find such a card, run far away since it’s likely a scam).

However, it is possible to find cards which give you as much as 2-3% cash back on all purchases, though they may have annual fees attached to them. It’s also possible to find a card which offers airline miles and even double and triple miles at certain specified locations, though again, these cards will carry a fee and may lack some other features that you happen to want in your credit card rewards program.

Few No Fee Cards

In fact, there are very few no fee cards offering significant credit card reward programs. While it is possible that you could find such a card, they are relatively few and far between and generally reserved for those with the most impeccable credit scores. Therefore, when considering a rewards card, it’s important to calculate how much money you’ll save or earn from the rewards as compared with how much it will cost you to carry the card.

Remember to Check Interest Rates

Banks need to make money from somewhere when they issue credit cards and one of the primary ways they make money is from interest on your balance. This is especially true with cards that carry rewards programs since the company has to pay for the rewards program as well and as such, interest rates are often somewhat higher with rewards cards.

Consider Which Rewards Are Most Useful

For all that it may sound tempting to get those airline miles; however, if you’re not really into flying much, the airline rewards credit card may be a waste of money for you. Consider instead a card which offers you cash back.

Watch that Cash Back Program

However, even in the case of cash back, remember that the amount is either going to be fairly small (typically 1-2%) or it’s going to be limited in time or locations (some 5% cash back programs are offered only for a limited time or are limited to specific locations which pay to be members of the program). This makes sense considering that banks only earn around 2-3% on purchases you make. They can’t reasonably be expected to pay out more than they earn on your purchases after all.

Remember, Sometimes Plain Vanilla in Credit Cards is Better

Finally, don’t be afraid to forgo a credit card rewards program if the alternative is a better deal for your needs overall. If you can get a no fee credit card with low interest rates, that may be the best choice of all for your particular situation after all.

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