As an expat living in the US, you’re no stranger to the importance of budgeting and being financially savvy. And while using credit cards can help you build credit and make purchases, did you know that by using the right credit cards, you can also turn your spending into free flights, cash, and other rewards?
Welcome to the world of credit card rewards programs, where each card swipe can earn you points, cash back, or travel miles that can be redeemed for various perks and rewards. These programs can be a great way to save money and get more out of your spending, but with so many options available, it can be hard to know which card is right for you.
That’s where this guide comes in. In this post, we’ll dive deeply into credit card rewards programs, explaining how they work, how to compare different options, and how to maximize your earning potential. We’ll also cover some tips and tricks for using your rewards to their fullest potential, whether you’re looking to save on travel, score a cashback bonus, or get something extra with each purchase.
By the end of this post, you’ll have a solid understanding of credit card rewards programs and how to use them to your advantage as an expat in the US. So, let’s get started and see how you can upgrade your wallet with credit card rewards!
It is a long post so here are the main points and feel free to jump straight to the section of interest to you:
- What is a reward credit card?
- How does a reward credit card work? Who pays for the reward? Where does the money come from?
- Pros and cons of reward credit card
- Are reward credit cards worth it?
- Different types of reward programs
- How to compare different programs?
- How to maximize credit card reward earnings?
- How to redeem credit card rewards?
What is a Reward Credit Card?
A reward credit card is a type of credit card that allows you to earn points, cash back, or travel miles for every purchase you make. These rewards can be redeemed for various perks and benefits, such as free flights, hotel stays, cash back, or merchandise. Reward credit cards come in many different forms, each with their own benefits, rewards, and fees.
When you use a reward credit card, you earn rewards for each purchase, usually based on a rewards rate, which can vary depending on the card type and purchase. For example, some credit cards will offer a higher reward rate for purchases at specific merchants or in specific categories.
How does a reward credit card work?
You may ask: why would banks/airlines/hotels offer these rewards? It surely costs them, and the money needs to come from somewhere?
Well, you are right that there is no free lunch.
Whenever you use your credit card to make a purchase (online or offline), a transaction fee is charged by credit card companies (like Visa, Master, American Express, etc…). The processing fee is typically between 1.5% to 3.5%. The merchants can either absorb that fee; normally include it in the price of the goods/services, or charge them back to the consumer directly.
This explains why some merchants don’t accept American Express for example, because their processing fee is often the highest vs. Visa or Master.
Card networks, card issuers or co-branded partners may receive a cut of this processing fee. To encourage consumers to spend more (use credit card more often), they return some of the value in the form of rewards (like welcome bonus, cash back, points, miles, etc…).
So my first advice is: do not force yourselves to spend more money (that you are not planning to spend anyway) because of the rewards. Because no matter what the reward is, given the economics, it will only be a fraction of the purchase price (less than 5% for sure) and you are still paying the 95%.
So now, it’s logical to talk about the pros and cons of reward credit card
Pros and Cons of reward credit card
- Extra rewards/savings: The biggest advantage of reward credit cards is the ability to earn extra rewards or direct savings for your spending. Depending on the card and rewards program, you may be able to earn points, cash back, or travel miles for each purchase you make. For example, check out the Bilt credit card if you want to earn points from paying rent.
- Variety of rewards: With a reward credit card, you’ll typically have various rewards to choose from. This can include free flights, hotel stays, cashback, merchandise, and more.
- Sign-up bonuses: Many reward credit cards offer sign-up bonuses to new cardholders. These bonuses can be a great way to earn extra rewards right away. For example, with many popular travel credit card (like those from Chase, American Express, or Capital One), the sign-up bonuses can be worth $500 or more.
- Annual fees: Many reward credit cards come with an annual fee, which can add to the overall cost of using the card.
- Higher interest rates: Reward credit cards tend to have higher interest rates than non-rewards cards. This means that if you carry a balance, you’ll pay more in interest charges.
- The temptation to spend more: Having a rewards card can make it easy to overspend in the hopes of earning more rewards.
- Redemption restrictions: Depending on the rewards program, you may have to jump through hoops to redeem your rewards. Some programs have strict rules about when you can redeem rewards, and others may limit your redemption options.
So are reward credit cards worth it?
Knowing the economics of the situation (where these rewards come from financially), the above pros and cons, reward credit cards are suitable for expats only if:
- You (and your family members) can control what you spend well i.e. don’t spend because of the rewards but use the credit cards for purchases that you will make anyway.
- You can pay the credit card bill in full every month. This means you do not carry a balance from month to month and have to pay the interest rate. The typical interest rate is astronomical like 18% to 20%, so no amount of reward points/miles or cashback is worth it. Remember, the equivalent monetary value of the reward is typically less than 3-4% of the purchase price. You can do the math 🙂
- If your credit card reward is miles or points (or something that is not cash back), you can use them or plan to use them. Otherwise, they are useless.
Now, if you satisfy all of the above and are not currently using reward credit cards, then you are leaving money on the table! Given that in the US, you can use credit cards for almost everything (including Rent now), reward credit cards can GIVE you hundreds or even thousands of dollars worth per year. For example, if your annual expense (including rent) is $40,000 or more, and assuming that you earn 1.5% back (either cash back or point/mile equivalent), that is $600/year.
Different types of credit card reward programs
When it comes to credit card reward programs, there are a few different types to choose from. The right program for you will depend on your spending habits and the types of rewards that you’re most interested in. Here are a few of the most common types of credit card reward programs:
- Cashback rewards: These programs allow you to earn cashback on your purchases, usually in the form of a statement credit or a deposit into a bank account. Some cashback reward programs offer a flat rate for all purchases, while others offer different rates for different categories of spending, such as grocery stores or gas stations.
- Travel rewards: These programs allow you to earn points or miles that can be redeemed for travel-related expenses, such as flights, hotel stays, and car rentals. Some travel rewards programs are affiliated with a specific airline or hotel chain, while others are more flexible and allow you to redeem rewards for any travel-related expense. For example Chase Saphire Preferred credit card, American Express Platinum card.
- Points rewards: These programs allow you to earn points for each purchase, which can be redeemed for various rewards, such as merchandise, gift cards, and travel-related expenses. Some points programs are affiliated with specific retailers or brands, while others are more flexible and allow you to redeem points with various partners. For example, the Chase Freedom credit card.
- Premium rewards: These programs offer more high-end rewards, such as access to exclusive events, concierge services, or luxury experiences. These types of rewards programs usually come with high annual fees.
- Business rewards: these programs cater to companies, not individuals. Of course, if you have your own business, you can apply and use business credit cards. The reward categories are similar to personal credit cards.
How to compare different credit card reward programs?
With so many reward credit cards available, it can be difficult to know which one is right for you. To help you make an informed decision, it’s important to compare different options based on the rewards, fees, and other features that matter most to you. Here are a few factors to consider when comparing credit card rewards programs:
- Rewards earning potential: One of the most important things to consider when comparing rewards programs is the rewards earning potential. This includes the rewards rate (the rate at which you earn rewards for purchases), as well as any bonuses or special promotions that may be available.
- For example, if you earn 1 point or 1 mile for every dollar spent, check online to see how much each mile or point from that partner is worth. For example, a quick Google search can tell you that each American express point is worth about 2 cents when you transfer to partners to use.
- Redemption options: Another important factor to consider is the redemption options. Make sure you understand the different types of rewards that are available, as well as any restrictions or limitations on redeeming rewards. Again, this is where Google can help you. Search for “partner name” redemption review or how to redeem “partner name” point/mile.
- Fees and charges: Reward credit cards often have annual fees and higher interest rates, which can add to the overall cost of using the card. Be sure to compare fees and charges across different cards to see which one offers the best value for you.
- If you plan to travel a bit, check to see if the card offers no foreign transaction fee.
- Additional features: Some credit card rewards programs offer additional features such as travel or purchase insurance, extended warranty, and price protection. These can add value to your rewards card, so it’s worth considering if the card has any additional perks. For example, many reward credit cards offer car rental insurance if you use the card to book and pay for the rental. So read the fine print to understand more about this benefit, as it can save you money.
- Affiliations or partnerships: Some rewards programs are affiliated with specific airlines, hotels, or retailers. This can be a great way to earn extra rewards or benefits, but it’s important to make sure you’re comfortable with the terms of these partnerships before signing up for a card.
It’s also a good idea to check the reviews of credit card reward programs in order to compare them. These can be found online on websites like Consumer Reports, NerdWallet, and Credit Karma. Additionally, you can also reach out to the bank or credit card issuer to get more information about the rewards program.
It’s important to remember that there’s no one-size-fits-all when it comes to credit card rewards programs. Every person has different spending habits and preferences, so it’s important to find a program that aligns with your lifestyle and will allow you to get the most out of your credit card spending.
How to Maximize Credit Card Rewards Earnings
Once you’ve chosen a credit card rewards program, you’ll want to make sure you’re maximizing your earning potential. Here are a few strategies to help you earn more rewards:
- Use your card for all purchases: To earn the most rewards, use your credit card for all purchases. But remember, do NOT overspend because of points; only spend on those purchases that you plan to do anyway.
- Take advantage of bonuses and promotions: Many credit card rewards programs offer bonuses or promotions for certain types of spending. Keep an eye out for these offers and take advantage of them when you can. These promotions are communicated via email or mobile app or website.
- Take advantage of category bonuses: Some credit card rewards programs offer higher rewards rates for certain types of spending, such as groceries, gas, or travel. Make sure to use the card for those purchases to earn more rewards.
- Be strategic about sign-up bonuses: Some rewards programs offer sign-up bonuses for new cardholders. Be sure to consider the terms of the bonus and make sure you can meet the spending requirements before signing up for a new card.
- Remember to convert the sign-up bonuses into monetary amounts so that you can compare which bonus is better.
- Keep track of your rewards: Keep track of your rewards balance and when rewards expire if the program has an expiration date. Make sure you redeem your rewards before they expire or you lose them.
- Use multiple cards: If you have multiple credit cards with different rewards programs, use the card that gives you the most rewards for the purchase you’re making. For example, one card gives you 1 reward point for every $1 spent on dining, and another card may give you 3 points. Assuming the point is worth the same for each card, you basically earn 3x back from using the right card.
How to Redeem Credit Card Rewards
Once you’ve earned rewards, it’s time to redeem them. Here’s how to do it:
- View your rewards balance: Most credit card rewards programs allow you to view your rewards balance and available rewards through the program’s website or mobile app.
- Choose your redemption options: Depending on the program, you may have a variety of redemption options to choose from. For example, you may be able to redeem rewards for cashback, travel, merchandise, or gift cards.
- While it may take additional research, different redemption options vary widely in terms of the values you receive. For example, with many popular travel reward credit cards from Amex or Chase, it is often much better to transfer the points to the Airline or hotel partners and then book direct with the hotel/airline partners vs. going through the Amex or Chase portal.
- Redeem your rewards: Once you’ve chosen your redemption option, you can redeem your rewards. This may involve filling out an online redemption form, calling the rewards program’s customer service, or using a rewards portal.
- Look for bonus redemption opportunities: Some reward programs offer bonus points or extra value when you redeem rewards in a specific way or at a specific time. Look out for these opportunities to get even more value out of your rewards.
- Keep track of the expiration date: Some reward programs have an expiration date on the rewards, so make sure to redeem them before they expire.
Credit card rewards programs are a great way to get more out of your spending by earning rewards such as points, cashback or miles. Understanding the different types of rewards program, how to compare them, how to maximize earning potential and how to redeem rewards are key to getting the most out of your rewards program.
While reward credit cards can be a great way to save money and earn rewards, it’s important to remember that they’re not without their drawbacks. Be sure to consider the costs and benefits, including annual fees, interest rates, and redemption restrictions before signing up for a card. Of course, do not spend more than what you plan or spend on products/services that you do not want just because of reward points or miles.
As an expat living in the US, it’s important to choose a credit card rewards program that aligns with your lifestyle and spending habits. By understanding how these programs work, you’ll be able to use your credit card rewards to your advantage, whether you’re looking to save on travel, score a cashback bonus, or get a little something extra with each purchase.
In short, by using the information provided in this article and by doing your own research, you’ll be able to upgrade your wallet with credit card rewards and make the most out of your credit card spending.