How to Choose a Large Rewards Offer
If you use credit cards, you should have at least one that offers a substantial reward every time you use it. If a card offers a large bonus just for signing up, evaluate the offer thoroughly. Plan your expenditures in order to take full advantage of the rewards. Here are some ideas to think about.
Valuing the one-time bonus
Consider the sign-up bonus.For example, a company may offer you 20,000 "points" just to open an account with them. If you're interested in the offer, take note of the expiration date, and sign up before that date. Keep the offer on file for future reference.
- A "point" usually means one cent. In this example, you would multiply 20,000 by .01 to get 0. The credit card company is offering 0 as a sign-up bonus.
Subtract the annual fee from the bonus.Let's say the annual fee is . Subtracting from 0 leaves you just 0 from that sign-up bonus.
Estimating your likely usage of the credit card
Estimate your projected use of the card for a year.This will give you an idea of your total reward. For example, you may estimate that you'll spend ,000 with the card in a year's time.
Figure your reward total.Multiply your estimated card use by .01. ,000 X .01 is 0. You would be rewarded 0 for charging ,000 on the card.
Figure your total bonus-and-reward for the first year.The 0 sign-up bonus, plus the 0 end-of-year reward, minus the annual fee leaves you with a total reward of 0 for using the card that year. That's not bad,assumingyou buy only things you would have bought even without the card. If you make purchasesjust becauseyou'll be rewarded by the card company, you may wind up poorer, not richer.
Estimating the card's ongoing value beyond the first year
Calculate what your second year return will be.There's no sign-up bonus this time, but there'salwaysthe annual fee. Assuming the same ,000 expenditure, (,000 X .01) - = . Thus, your second-year return would be about .
Decide whether the second-year return is enough to keep using the card.Look at other card offers and make comparisons.
Let your card company know you're considering another company.They may be willing to sweeten their offer, perhaps waiving the annual fee for one year.
Paying on time
Don't diminish the value of your rewards.You will lose ground by paying interest or "late fees" because of missed payments, late payments, or partial payments.
- Do not use the card for installment purchases.
- Pay off the full statement balance each month.
- Make your payments consistently on time.
Pay online or in-person.Do not pay by mail unless you can mail the payment well in advance of the due date. Be aware of late fees and interest rates for unpaid balances. These costs are typically very high. It's always best to pay off your full balance every month. If you can't do that, be sure to make at least the minimum required payment for the month. Failing to dothatis very costly in terms of fees, interest, and damage to your credit rating.
On a calendar or planner, place reminders for when to expect your monthly card statement.If you're not completely satisfied with the card, place a reminder to cancel it before the next year's annual fee is charged. You may have to ask the company what that date is.
- To valuate mileage, as with a travel rewards card offer, go to an airline website, and see what flying 20,000 miles (32,000 km) (for example) would cost. This will allow you to compare mileage rewards with other kinds of rewards.
- If you do not have an emergency fund (savings set aside to cover normal expenses in case of job loss or inability to work), reconsider the use of credit cards. Instead, use a debit card (with rewards). This will help you stay out of money trouble.
- Don't even consider using credit cards unless you are a fairly disciplined person, or unless you're willing to make consistent use of a day-planner for noting due dates.
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