Credit cards are a fact of modern financial life. And with a reported 650 million active accounts in the US today, it’s an incredibly crowded market.
There are hundreds of different cards to apply for. One of the many ways card companies use to promote their products is to offer incentives such as cash back or air miles. But are these benefits worth considering when looking for a new credit card? Here are the five most common types of incentive, along with their potential advantages.
Cash Back Cards
The idea behind a cash back incentive is that your account is credited with a percentage of your spending. This figure is usually small, with a typical card paying back between 0.25% and 0.5% of your spending. However, switching most of your everyday purchases onto a card, these small amounts can add up to a good sum.
The crucial point is to make sure you clear your balance every month. Any benefits of cash back will be quickly overwhelmed if you need to pay interest at any point. Also, be sure that your card doesn’t charge an annual fee. If it does, check that your estimated cash back earnings will more than cancel this out.
Rewards cards operate in a similar way to cash back. Instead of paying paid in money, your spending will accrue points which you can redeem against a range of products or services. If you can find a card that offers rewards you’re genuinely interested in, this can be worthwhile indeed. In most cases, the incentives will be more generous than with cash back, although more limited in choice.
However, the same considerations apply to rewards cards as to cash back offers. You should always clear your balance in full, and check that any annual fee doesn’t cancel out the benefits you hope to earn.
Charity credit cards are an easy way of donating to your favorite good cause without any extra effort on your part. If you can find a card which supports a non-profit you like, then these can work out well. The sums involved won’t be huge, but every little bit helps, and you can be sure the company will make regular donations without you having to remember to make them yourself.
Gas Credit Cards
As their name implies, gas credit cards are tied in with spending on fuel. Some may reward you for filling your tank at any station, while others will restrict you to a particular fuel brand. The latter will usually provide more generous rewards. If you drive often, then these cards could be attractive if you’d be buying fuel from that company. If you’d probably choose a different, cheaper supplier if you weren’t considering the rewards, then the sums probably won’t add up to anything particularly valuable.
Travel or Air Miles
Travel or air miles cards reward you for booking flights using your card. In turn, the points you earn are redeemable against future bookings. In some cases, any flight booking will earn you a reward. Other cards, conversely, will tie you to a particular airline. If you fly often and for long distances, then these can be valuable cards to use. Especially when you consider other perks such as discount bookings, access to executive lounges, and so on.
Whichever type of incentive you choose, the key point is to spend as much as possible to build up your rewards. At the same time, you should be sure never to carry a balance and be hit with interest charges. If you’re already a heavy card user who avoids debt, applying for these cards can make a small but welcome contribution to your finances. ♦