How The Rewards Game Works
Credit card issuers offer rewards to entice you to apply for their card. Your challenge is to use the card and pay off your balance in full at the end of each month, avoiding any interest charges. If you can't bring yourself to do this, don't get enter the game (you will get clobbered). It is obvious that those cards offering the highest rewards are usually those with the worst interest rates. The rewards programs are funded partly by the money that the card company earns from the merchant transaction fees, but it also comes from the double digit interest rate charges borne by those carrying balances. I don't want to oversimplify this and suggest that all rewards card programs have egregious terms, but there is no doubt an obvious correlation here.
I have to be honest and admit that I have never been a credit card reward junkie. That will be changing as I see more and more opportunities to 'get paid back' in a very big way. I have a debit card that pays me 1% back on my purchases. It is nice to get a $15 or $20 credit around the 15th of the month. It is a PayPal debit card (and I did not get it for the rewards, but love the benefit). This is certainly a very lightweight rewards program compared to credit cards paying 5% cashback (and other perks to boot such as airline miles, free Amazon Prime Memberships, and more). Debit card rewards have all but disappeared since a change in the law in 2013 limiting the amount banks can charge merchants on debit transactions. One popular debit card program was PerkStreet Financial (which was even endorsed by Dave Ramsey). PerkStreet ceased operations in September of last year at the same time the new law was enacted (no coincidence).
There are some tricks that even as a novice player I have learned. For example, if I use my pin when using my PayPal debit card I don't get the 1% back. As a result, I have to ask the cashier to make my transaction a credit not debit purchase. Many cash registers automatically select the debit option when it is available, but the cashier can manually override that if you ask (merchants pay a lower fee on debit transactions which is why their transaction systems default to this option when your card can be run as a debit). I call this a game in the headline because it is one. If you don't realize that it is a game, you will lose - and you will end up as a 'reward' to the credit card issuer (not the other way around).
Crazy Rewards Points Stories
I have seen quite a few articles over the years about people knocking it out of the park with rewards points and cash. Consider the Mowrey family and how they have used their rewards to travel on multiple international vacations. How a really cute baby and his family paid for a $3,500 vacation to South Beach with rewards points. Check out the story of Brian Kelly (known as the points guy) and how he accumulates six figure amounts of rewards points and has been doing so since he was a teenager.
A New Tool That Makes Playing The Rewards Game Easier Than Ever
CreditCareTuneUp.com offers an amazing tool that provides customized recommendations on how to earn the most rewards based on your spending patterns. The site offers a simple fill-in-the- blanks form which analyzes your spending and then offers a suggest list of the most optimal rewards cards based on your situation. This is valuable since the amount of rewards vary widely based on what you are spending money on. I would guess that this is likely due to the merchant fees that the credit card issuer earns based on industry. Another similar card screening tool is available from NerdWallet.com.
Top Rewards Card Lists
I invite you to use the comments section below to share your own ideas and strategies on how you have taken advantage of credit card rewards programs.
Helping you make the most of God's Money!