The argument against credit card rewards
If you avoid interest charges, then credit card rewards are like free money. So why is it that some experts make it seem like rewards are a bad thing?
The biggest criticism of credit card rewards is they incentivize spending money. It's already easy enough to overspend with credit cards and end up in debt. When you're earning points or cash back, it's even more tempting to make that big impulse buy you really shouldn't.
I've never been a fan of this line of thinking. You're missing out on something beneficial to you because of a worst-case scenario that's 100% avoidable.
Sure, credit card rewards incentivize spending more, but you're still in full control of what you spend. If you have a budget and you track expenses, you can get all the benefits of credit card rewards with no interest or credit card debt.
What about annual fees?
Another criticism I see all the time is those rewards aren't free, because some rewards cards have annual fees.
That's not much of an argument. There are rewards cards with annual fees, but there are also many cards that earn rewards and don't charge one. If you're not interested in paying for a card, stick to no annual fee credit cards.
The cards with annual fees tend to have more perks, so it's not as if you're paying a fee for nothing, either. For example, I carry some credit cards with annual fees, but it's because I've done the math and I know they're saving me a lot more than what they cost.
LEARN MORE: Is Your Credit Card Annual Fee Worth It?
How rewards credit cards work
If you're interested in rewards credit cards, the first step is learning how they work. A rewards credit card earns rewards, normally in the form of cash back, points, or miles, when you use it to pay for purchases. These rewards are tied to your credit card account, and you can redeem them with the credit card company.
There are all kinds of different types of rewards cards to choose from, and we've covered the most popular ones below.
Cash back credit cards
Cash back credit cards earn cash rewards on purchases. If your card earns 2% cash back, then $1,000 in eligible purchases would be worth $20. Most card issuers let you use cash back as a statement credit to reduce your credit card bill. Some of them also let you transfer cash back to your bank account or request a check for it.
Many consumers love cash back cards, and for good reason. They're easy to understand and don't require much time or knowledge on the cardholder's part.
Travel rewards credit cards
Travel rewards credit cards earn points or miles on purchases. You can redeem these rewards for travel spending.
LEARN MORE: How Do Credit Card Points Work?
When searching for a travel credit card, you have a few different options available. There are airline credit cards that earn credit card miles with a specific airline. There are also hotel credit cards that earn rewards points with a specific hotel chain.
Finally, there are more all-purpose travel credit cards. Some of these earn rewards you can redeem at a set rate, such as $0.01 per point, toward travel purchases. Others have transferable rewards you can send to airline and hotel partners in that card's rewards program. These include the American Express Membership Rewards cards and Chase Ultimate Rewards cards, among others.
It takes a bit more time to learn the ins and outs of travel cards compared to straightforward cash back cards. If you love to travel, that could be time well spent. Travel rewards can help you travel for free with credit card points, and these cards often have extra travel perks as well.
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Bonus category credit cards
Bonus category credit cards earn more in specific spending categories. You can find cards that earn bonus rewards on groceries, gas, dining, and much more. There are both cash back and travel credit cards with bonus categories.
Cards with bonus categories can help you maximize credit card rewards if a lot of your regular spending is concentrated in certain areas. For example, families often benefit from gas and grocery credit cards, if those match their normal spending habits.
Should you get a rewards credit card?
If you have a good credit score and you always pay your card's full statement balance each month, a rewards credit card is a great choice.
The top credit cards, including top rewards cards, are almost always targeted at people with good credit. That means a FICO® Score of 670 or higher. If your score is in that range, then you could get a quality rewards card that will save you money, either through cash back or credit card rewards points.
COMPARE TOP PICKS: Best Rewards Credit Cards
