How to maximize credit card rewards for big purchases
Credit card rewards can be a great perk, whether you opt for cash back, points or travel miles. But when it comes to big-ticket items such as a new computer, when does it make sense to use a rewards card and what should you know before you buy? Here are four things to consider before you decide to purchase with plastic:
Understand your rewards program
First things first: Figure out how your credit card accrues rewards and how you can use them. Review the documentation that came with your card, or log on to the provider’s site to determine:
• How you earn points
• Whether there is a cap on how many points you can earn
• How you redeem them
• Whether the points have an expiration date
You need to understand your rewards program and its rules. Also, monitor your statements to make sure you maximize the benefits and don’t overlook potential pitfalls.
Figure out how long you carry the balance
It’s generally best to save up for a big purchase so you don’t end up paying a lot of interest on your credit card balance. If you have saved the money for what you want to buy, you can still use your credit card to make the purchase and earn the rewards. Just pay off the balance as soon as it’s due so you don’t owe any interest.
If you won’t be able to pay off your credit card for a long time, the interest you end up paying on the monthly balance could outweigh the rewards benefits. Pay off the balance as quickly as possible to maintain good credit and avoid mounting debt.
Know your APRs
Understanding your annual percentage rate (APR) is important regardless of which kind of card you use. If you use a rewards card with an introductory zero-percent APR, it can make sense to pay for a higher-priced item and carry a balance, as long as you pay it off before the end of the introductory period. However, if your card has a high APR, you could pay a lot of money in interest over time.
Different cards have different rates, so you should weigh your options carefully. Often, credit cards that don’t offer rewards have lower APRs, which may be a smarter choice. Store-issued cards typically have higher rates than bank-issued cards, but it all depends on your creditworthiness and your FICO® score.
Which rewards card makes the most sense?
If you have multiple rewards cards, deciding which to use likely depends on what you’re planning. Consider your current lifestyle and what’s most important to you. Are you saving up for something in particular, like a down payment on a car or home? In that case, you might want cash-back rewards. Are you planning a romantic getaway? You might focus on collecting points you can convert to a plane ticket or hotel nights. Try to avoid making the decision at the last minute. Going in, you should know which card makes the most sense for you in any given situation.
Ultimately, there is no one-size-fits-all rewards card. You need to consider several factors, including your financial situation and your goals. Understanding your rewards, how you can redeem them and the real cost of any purchase are all essential to making a smart choice.
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