How to Maximize Credit Card Rewards (And Why Cash-Back Cards are the Best for Most People)

Those of you who read Free Money Finance regularly know how I like the idea of earning money from a cash-back credit card (Last year I made $330 from American Express and probably could have earned more. In addition, I used my second card to save a ton of money on car repairs.) In fact, making money with cash-back credit cards is one of the key ideas shared on the Free Money Finance guide to making money.

The piece I want to highlight in this post, promises to tell us how to maximize our credit card rewards (including point-based programs, cash-back programs, and frequent flier reward cards.) Here's their bottom line:

For most people, cash-back cards are the way to go since they just don't charge enough to get a free airline ticket - in most cases, you'll have to spend $25,000 a year to earn a domestic flight. Plus, with the trouble the airline industry has been in, airlines are more likely to raise fees and restrictions on when you can fly.

Point-based programs aren't such a great value, either, since items in reward catalogs are usually way overpriced, according to Curtis Arnold of CardRatings.com. "If you spend $10,000, you'll get 10,000 points. But in the end, if you're only getting a toaster oven, you're getting shafted," he says.

I agree. I'd add a couple other benefits of cash-back cards:

• Cash-back credit cards give you more flexibility. You can spend the money you earn on anything -- not just one airline or on a set of catalog items.

• You'll (likely) get greater value. For instance, last year I charged almost $19,500 and earned $330 -- enough to buy me an airline ticket (if I wanted). Yet the amount I charged would not have earned me any ticket (and even if it did, I'd be limited by the program to certain airlines, dates, etc.) With cash, I'm open to search for deals however I want -- giving me an overall better value.

Finally, the piece ends up with some advice that anyone can use to make a reward program they kinda like into one they love:

The credit card industry pays up to $200 to acquire a single customer. In other words, the ball is in your court.

If you have a reward card, or are in the market for a card, you may be able to eliminate some fees by negotiating with your issuer. About 75 percent of cards have some kind of reward program, according to Ben Woolsey of CreditCards.com. So these cards are competing hard for your business.

"Almost anything the consumer doesn't like, they can request relief and card issuers are fairly flexible because it costs so much to acquire a new customer," says Woolsey.

Yes, it's a buyer's market when it comes to reward credit cards. I suggest you run the math on the options you're considering, then contact each of the card issuers to see if they can sweeten the pot. THEN, you'll be ready to decide on the best reward credit card for you. I also suggest that you include at least one cash-back card in the mix and consider the benefits I've mentioned above. I've tried many different reward programs, and the cash-back option seems like the clear winner to me.

Comments

[Credit Card Guide]

I agree. Also, smart consumers should pick up more than one cashback cards so one can maximize rewards in different scenarios. For example, some cards give 5% cashback on grocery shopping, while other cards offers generous reward on gas, travel or restaurant bills.

[Flexo]

There are a number of credit card companies that are eliminating or reducing the cash-back rewards cards, so watch your terms of service to make sure you're aware of any changes.

[Joshua]

Cash-back credit cards are useful when they are used in a rational way. Other ways they could be harmful for your incomes. So, be careful with the expenses and with the reasons for using cash-back credit cards.