Alternatives To Rewards Credit Cards
Your financial situation may call for a different type of credit card. Here are a few alternatives to rewards credit cards that could be more useful for you:
0% intro APR credit cards: Credit cards with a 0% intro APR on purchases. If you won’t be able to pay your credit card bill in full for any reason, then 0% intro APR cards are the best option. They’re especially helpful for financing big purchases. The credit card company won’t charge you interest for the duration of the intro period.
Credit cards that are open to applicants with a poor or limited credit history. While tend to be light on benefits, they can help you improve your credit.
Balance transfer credit cards: Credit cards with a 0% intro APR on balance transfers. When high-interest debt is costing you money every month, balance transfer cards can come in handy. You can transfer your debt over and avoid interest for the length of the intro period.
Types Of Credit Card Rewards Programs
Credit cards generally offer one of three reward structures: cash back, points or miles. The type of rewards you earn depends on the card you have.
The majority of cash-back cards let you earn a certain percentage of cash based on your spending, such as the Citi® Double Cash Card, which provides 2% cash back in total: 1% on all purchases and an additional 1% after you pay your credit card bill.
However, some cash-back cards actually accrue points that can be converted into a dollar value. For instance, the Chase Freedom® and Chase Freedom Unlimited® are marketed as earning cash back, but rewards are provided as Chase Ultimate Rewards® points. The points vary in value based on how you choose to use them.
Other rewards cards that don’t earn cash back either provide points or miles. For example, the Chase Sapphire Preferred® Card offers Ultimate Rewards® points, whereas the American Express® Gold Card offers Membership Rewards® points.
Most co-brandedairline cards offer miles as part of the brand’s unique membership rewards program. One example is co-branded Delta cards, like the Delta SkyMiles® Blue American Express Card, which offer rewards as SkyMiles .
Bonus Or Bogus: Who Pays For Rewards Credit Cards
When you pay with a rewards credit card, you might get airline miles, points redeemable for merchandise, or cash back into your account. Ever wonder who’s footing the bill?
Every time you pay with a debit or credit card, retailers get charged an “interchange fee” from card issuers to accept the payment. Interchange fees vary from card to card, but typically hover between 1 and 3 percent of the final purchase price, according to a study by the Government Accountability Office.
Since rewards and cash back cards usually come with higher interchange fees than traditional credit and debit cards, critics argue that the benefits of these cards may not be worth the increased cost they place on retailers. Do retailers pass these costs on to their customers? Are your reward credit card offers really rewarding you?
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For Dining And Transit: Bmo Eclipse Visa Infinite*
While the TD First Class Visa Infinite covered above earns a solid flat reward on your everyday spending, the BMO eclipse Visa Infinite offers a strong boost in particular categories, which are broadly defined, too. Youll earn 5 BMO Rewards points on food and transit spending. That means in these categories youre getting a return of 3.5% per $1 when redeemed for travel . Other categories earn at a rate of 1 point per $1, which is just 0.71% in travel rewards. But theres a unique perk to make up for that: Youll receive an annual lifestyle credit of $50 to spend as you please. Also, travel insurance and new mobile device coverage are included.
- Annual fee: $120
- Welcome offer: Earn up to 60,000 points and a $50 lifestyle credit on the account.
- Earn rate: 5 BMO Rewards points per $1 on food purchases, including groceries, restaurants and delivery, as well as gas and transit purchases including taxis and rideshares 1 point per $1 on everything else Income requirement: $60,000 personal or $100,000 household
- Additional benefits: Travel insurance up to $1,000 in new mobile device coverage Visa Infinite privileges
American Express Gold Card: Best For Dining Rewards At Restaurants
Welcome offer: Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new card within the first six months, although you may be targeted for up to 75,000 bonus points through the CardMatch tool .
Rewards rate: Earn 4x dining at restaurants and U.S. supermarkets 3x on flights booked directly through airlines or on Amex Travel 1x on all other purchases.
Annual fee: $250
Who should apply: With the Amex Gold, youre getting a great 8% return on restaurant and U.S. supermarket spending and a solid 6% return on airfare. The Amex Gold is a nice middle ground between the top-tier The Platinum Card® from American Express and a lower-value beginner card, such as The Amex EveryDay® Credit Card from American Express. The information for the Amex EveryDay card has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
Youre getting perks, such as a dining statement credit and up to $120 in Uber Cash annually in the U.S. each calendar year , plus a rewards structure that focuses on common spending categories besides just travel all without the massive $695 annual fee that comes with the Amex Platinum card. If you want an Amex card that makes it easy to earn Membership Rewards on everyday expenses such as dining at restaurants and groceries at U.S. supermarkets, this is definitely a card to consider. Enrollment required for select benefits.
Annual fee: $95
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Retailers And Consumers Ultimately Pay The Price
Credit card issuers are offering better and better rewards and sign-up bonuses,and consumers are taking advantage of the increasingly competitive market to earn points, miles, and cash back just for swiping. But have you ever wondered how card companies can afford to offer such great rewards? The answer is not as obvious as you might think.
Purchases on rewards cards reached a whopping 88% of spending on general-purpose credit cards in 2016, according to the Consumer Financial Protection Bureau.
How Do Travel Rewards Credit Cards Work
Travel rewards cards dont just mean airmiles. They bring a whole host of travel perks into your life that youll wonder how you previously lived without like lounge access, seat upgrades, comprehensive travel insurance, statement credits and more.
Similar to cash back cards, there are also different types of travel rewards cards which offer slightly different benefits.
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How To Fight Back
Interchange fees are actually just a portion of what merchants pay to process credit card transactions, says Heather Petersen, CEO of the National Merchants Association, an advocacy group in Burbank, California that focuses on optimizing credit card processing for small and medium-sized businesses. On top of interchange fees, retailers also pay smaller surcharges to the card processor, the consumers’ financial institution and other parties.
“The FTC has regulated some of it, but you see everything from customer service fees to debit access fees, statement fees, PCI compliance fees,” Petersen says. “You name it, you can find it, I’m sure.”
While business owners can’t eliminate interchange fees, they can ensure that they’re not overpaying by having a third party group like the National Merchants Association optimize their processing contracts, says Petersen.
Likewise, if you’re a consumer, you can’t get rid of the increased cost caused by interchange fees, but you can save money by not overspending on your rewards credit cards and by maximizing your rewards to ensure that the markup you’re paying pays off in the end. That means using rewards points or miles in a timely manner, taking steps to ensure that rewards don’t expire and staying within the limits of the reward card program.
How To Make The Most Of Your Rewards Credit Cards
Whether youâre a current cardholder or shopping around for a new card, credit card rewards and benefits have probably factored into your decision to apply for a particular card. Spotting bonuses such as cash back or travel miles may be obvious. But many rewards credit cards offer much more.
Anyone whoâs examined a rewards credit card offer knows how much information there is to digest. As you compare rates, spending limits and annual fees, it can be easy to overlook other advantages.
Here are a few Capital One card perks you may not know aboutâand a few of the cards that unlock the potential of a rewards credit card.
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How Do Credit Cards Work
Its important to understand exactly what credit cards do, so you can use them to maximum advantage without falling into financial trouble. There are lots of benefits that come along with having a credit card. For example, they offer credit that can be used when you make a purchase, for balance transfers and/or cash advances. Essentially, your credit is like a short-term loan with a balance that comes due every month. As you pay down your balance, the credit available to you the following month starts to go back up to the maximum credit limit on your card.
A credit cards strongest advantage is convenience. Simply pay for your purchase with your credit card and you will be billed for the outstanding balance the following monthno cash in your wallet required. Other benefits include the ability to accrue rewards and pointssuch as cash back or travel pointsbased on a percentage of your purchases each month, usually between 1% to 4%, depending on which credit card you choose. You can then redeem those points for gift cards, travel or other items offered through the credit card companys online rewards catalogue.
Should I Get A Rewards Credit Card
You should get a rewards credit card if you have a good and you plan to pay the bill in full every month.
Rewards cards are usually a great choice. If you use them correctly, they can save you a lot of money. There are only a couple situations when you shouldn’t focus on getting a rewards card.
If you don’t have a good credit score, you should work on that first. It usually takes a FICO® Score of at least 670 to be approved for any of the best rewards credit cards. By improving your credit, you’ll be able to qualify for rewards cards that offer much more value.
A rewards card also isn’t worth it if you won’t pay in full. Every month that you carry a balance, the card issuer can charge you . The cost of that will almost always outweigh your rewards.
Here are the pros and cons of having a rewards credit card:
- Typically include complimentary shopping and travel protections
- Can build your credit when you consistently pay your bill in full
- Can encourage you to spend more money
- May charge an annual fee
- Top rewards cards are only available to consumers with good credit
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Who Pays For Reward Card Points Why And What To Do About It
Not long ago, award travelers had plenty of options for earning points and miles from both credit cards and rewards debit cards. However, debit options have become scarce, and the remaining debit rewards programs arent nearly as rewarding as they used to be. Why, you ask?
In 2010 Congress passed the Durbin Amendment which essentially lowered and capped rates on all pin entered debit fees. This caused banks to lose billions in revenue so they retaliated by aggressively promoting the use of credit cards with huge incentives through Rewards programs. Understandably, credit cards are now the preferred form of electronic payments due to rewards incentives. For the first time ever, points issued by a Visa card exceeds American Express.
Almost half of people that opened a rewards card account did so because of a sign on bonus. Yet, eighty five percent said the ongoing features and benefits were most important in their decision.
In the first quarter of 2017 credit card issuers spent $6.2 billion on rewards. Just one year prior, in the first quarter of 2016, $5.1 billion was spent. A twenty two percent growth in only one year. The question is, who pays for the majority of this?
Visa / MasterCard / Discover / AMEX
So what does this mean for businesses across America? Rates and additional fees will continue to rise more frequently. Business must learn to adjust to these trends to survive.
How Does a Merchant Benefit?
But What If You Pay Off Your Credit Card Balance Each Month
Okay, so say you do pay off your balance each month. It feels like youre being responsible and building a strong credit score. It feels like youve got a cash-flow plan and security. It feels like those rewards are just icing on the top of what you buy anyway.
Listen. Those feelings are just distracting you from these truths:
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Who Picks Up The Tab For Credit Card Rewards
Recently there was an article with this subject line in the Wall Street Journal. However, the author covered this subject in a simplistic and cursory manner. She didnt really explore the numbers that drive this business, and she never really answered the question. Today, we are going to take a more in-depth look at it and come up with some answers.
First, we should recognize that rewards are important for people who do use credit cards about three-quarters of the population. In fact, about a third of them say that when choosing a card, rewards are their most important consideration. While most people think of airline miles, there are two other reward types: points and cash-back.
Second, this is a big revenue source for bankcard issuers and also for airlines. In fact, if you look at the revenue components for the major airlines, you will see that about 60% of their revenue comes from ticket sales to consumers and 40% comes from selling frequent flyer miles. This is pretty amazing given the size of the domestic air market over 700 million trips last year, representing two trips for every man, woman and child in the country!
A Credit Score Isnt Your Friend
FICO runs so deep these days, some might think its been around foreverlike the U.S. probably needed one to make the Louisiana Purchasebut guess what: The FICO score didnt even become a thing until 1989. Its a new standard were told we have to measure up to, but in reality, a FICO score doesnt tell anyone if youre wealthy, responsible or successful. It just says how steady youve been at making payments to banks and lenders over and over again.
Heres a list of things you can do without a FICO score : buy a house, rent an apartment, rent a car, apply for a job, anything. Literally anything.
Too many Americans are falling for the lie that you need a good credit score. Hey. Your worth isnt set by a number. Youre more than that. Just say no to FICO.
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How Does Cashback Work In Supermarkets
For example, a customer purchasing $18.99 worth of goods at a supermarket might ask for twenty dollars cashback. They would pay a total of $38.99 with their debit card and receive $20 in cash along with their goods. This benefits the store as it reduces the amount of cash banking the store has to do.
How To Decide: What Is The Best Credit Card For Me
To decide which credit is the best for you, you need to look at your priorities. If you normally carry a balance or you want to reduce your debt, then a low-interest or balance transfer card should be the only types you consider.
People who always pay off their full balance every month need to decide whether a travel or cash-back card makes more sense for them. Travel cards can offer lucrative rewards, but if you dont like to travel, theres no point in you getting a travel credit card. If this sounds like you, then a cash-back card may be the way to go.
Now that youve got your category of card selected, take a look at the earn rate, additional, benefits and which type of points you earn for each card. If you happen to spend a lot on gas and groceries, then look for a card that has a high earn rate for those categories.
The annual fee should also be a consideration in your decision making, but if you think youre getting good value out of your additional benefits and youre making more back than you paid with the fee, then it shouldnt be a big deal.
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Always Pay Off Your Balance In Full
Added interest can quickly change a credit card from a useful tool to a financial burden. Credit card issuers profit from interest, and some of the most common fees associated with credit cards are linked to late payments. When choosing a credit card, its important to only spend what you are realistically able to pay off in a month, or you run the risk of losing money rather than earning rewards.
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The American Express® Gold Card earns a massive 4x points at restaurants and on up to $25,000 per calendar year at U.S. supermarkets , 3x points on flights booked directly through the airline, and 1 point per dollar on everything else. Based on the fact that you can easily redeem Membership Rewards points for more than 1 cent of value each when you transfer them to airline and hotel partners, this is one of the highest-earning available cards for everything food-related.
The American Express® Gold Card offers up to $120 in dining credits per year , broken into chunks of $10 each month. Credits are good for purchases through food delivery services Seamless and GrubHub, and at Boxed, The Cheesecake Factory, Ruth’s Chris Steak House, or participating Shake Shack locations. Cardholders also receive $120 per year in Uber Cash .
These credits can offset most of the card’s $250 annual fee even before factoring in the value of the rewards you’ll earn.
What the experts love: Fantastic rewards on dining and groceries at U.S. supermarkets, statement credits, and benefits to offset the annual fee
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