Thursday, July 12, 2012

Maximizing Credit Card Rewards

The credit card industry is one of the most profitable and lucrative industries in the world. In order to maximize their profitability, credit card issuers will do anything they can to attract new customers. For those with good credit histories, this can mean receiving significant rewards from the credit card providers. While using credit cards frequently can lead to the accumulation of credit card debt, there are several ways that a consumer could properly manage their credit cards to receive the most rewards possible while reducing the amount of money that they spend on fees and interest.

The first way to take advantage of rewards and promotions provided by credit card providers is to take advantage of low interest or zero interest introductory periods. One of the main ways that credit card providers attract consumers is to offer introductory periods where the interest rate is extremely low. If you have a balance on a credit card with a higher interest rate, it would be wise to transfer your balance to the lower interest card. However, when signing up for these low interest cards, you also need to factor in the length of the introductory period and what the rate will revert to after it is over. If the rate after the introductory period is very high, you will need to be prepared to either pay off the balance or transfer it again after the introductory period is over.

Another way that you can take advantage of rewards and promotions is to look out for cash back promotions. One of the most popular promotions is for a credit card provider to offer a sum of cash back if you meet certain charging thresholds within the first few months of use. These promotions typically range form one to five hundred dollars, but require spending up to a few thousand dollars within the first few months of use. If you do not typically charge this much on your credit cards already, then obtaining the minimum threshold amount may be impossible without overspending. However, if you do typically charge that amount each month, then the cash back cards could be a very lucrative option for you.

The third way to maximize the advantage of the rewards and promotions is to avoid paying annual fees. While some credit cards offer seemingly very high rewards to their customers, they may also have very high annual fees that could immediately dilute the extra rewards. However, some of these card issuers do not charge a fee until after the card has been in use for a full year. In order to maximize the rewards, a good option would be to cancel the credit card prior to the first year anniversary.

Most importantly, when using credit cards to obtain rewards, it would be wise to consider how you spend and how each card could benefit you personally. Each card offers higher cash back or rewards on certain purchase categories. For example, one card may offer five per cent cash back on grocery store purchases while another would offer a higher return on dining out. Be sure to consider your personal situation and try to estimate what your rewards would be with each card offer.

While using credit cards to maximize rewards could be financially beneficial, it is important to remember how it impacts your credit. If you are planning on purchasing a home or car within the next three months, you should avoid opening or closing any credit card accounts. Also, you should always pay down your balance each month and never have more than four cards open at any one time.

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