How to choose the best rewards credit cards

I’ve been writing about private finance since round 2016, when as a reporter I talked to monetary specialists on a near-daily foundation about finest practices for constructing wealth. In 2020, after greater than a 12 months of rigorous examine, I turned an authorized monetary planner skilled, which taught me to suppose critically about monetary selections. 

Like signing up for bank cards.

Credit card rewards have helped me pay for worldwide flights, nab nice live performance tickets, acquire entry into cozy airport lounges, decrease my assertion steadiness, and a lot extra. I’m a giant fan — and I’m removed from alone.

Since round 2019, Americans are placing greater than 90% of complete annual bank card spending on rewards playing cards, based on a report from the Consumer Financial Protection Bureau.

Related: I get free flights simply by paying lease. Here’s how I did it and how one can too.

Credit playing cards are an necessary instrument for constructing and sustaining good credit score. So why not earn additional money and perks on your on a regular basis spending? As lengthy as you’re paying your bank card invoice in full and on time, the logic checks out (alas, greater than half of U.S. cardholders don’t).

CFPB reported that cardholders redeemed a complete of $35 billion in rewards in 2022 (excluding the worth of factors or miles earned on co-branded resort and airline playing cards). That shakes out to a rewards worth of $167 per cardholder, on common — a 44% improve from 2021.

As a monetary planner, family and friends usually ask me which bank card they need to use. There isn’t one reply. Instead, my finest recommendation to these in search of a rewards card is to maintain it easy: Choose two bank cards that supply totally different rewards buildings and advantages — and transfer on.

Compare finest financial savings charges

Pick playing cards that match present spending habits

Three-fourths of basic goal bank cards in use are rewards playing cards — the market is saturated. And too many individuals take this to imply that their wallets must be filled with them. But the extra bank cards you’ve got, the extra difficult your cash system turns into.

Not solely will you might want to put extra thought into which playing cards to drag out for particular purchases to reap essentially the most rewards, however you’ll have to hold observe of extra balances and invoice due dates, and probably put aside extra of your funds to cowl annual charges.

The extra playing cards you’ve got, the extra difficult your cash system turns into. My suggestion: decide two rewards bank cards.

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I’m not within the enterprise of rating rewards bank cards, however loads of different journalists and rewards fanatics are. Check out their lists and see what speaks to you. But resist the urge to get the costliest and flashiest card out there. Sign up bonuses are a pleasant perk, however will the cardboard be of any worth to you after that?

I like to recommend aiming to have one in every of every of the 2 sorts of rewards playing cards — factors/miles and money again — and beginning with the latter. Cash again playing cards often don’t have an annual payment, so there’s no outlay. And you seemingly gained’t want a wonderful credit score rating to get authorized, such as you do with premium journey rewards playing cards.

Cash again bank cards have essentially the most easy rewards construction, offering you with a flat-rate share low cost on totally different classes of purchases, equivalent to eating or grocery shops. Depending on the cardboard, money again can present up as a press release credit score in your account or be despatched to you as a test. For instance, 5% money again at eating places means you’d earn $5 again for each $100 you spend eating out.

If you’re a frequent traveler in search of premium advantages, equivalent to airport lounge entry, have a look at your choices for a premium journey rewards card (your credit score rating could also be an element during which playing cards can be found to you).

Travel playing cards reward you with factors or miles for each greenback you spend, with extra awarded whenever you spend on airfare, lodging, and eating. You often get essentially the most worth on your factors for those who use them to buy — you guessed it — extra journey, however some playing cards will even enhance the worth of your factors whenever you store with sure manufacturers.

If you’re a loyalist to at least one resort chain or airline, take into account a co-branded card that offers you the power to unlock airline standing, free or discounted flights and resort stays, and different travel-related perks.

Just keep in mind: Your spending shouldn’t be dictated by the bank cards you’ve got. Pick playing cards that match your present spending habits, not some future excellent.