Credit Card with rewards points

Question

My bank is currently offering me a credit card with reward points. Here are the details on it

• Earn 20,000 bonus rewards points when you spend $2,000 in net purchases (purchases minus returns/credits) in the first 3 months your account is opened
• Earn 5X rewards points for every $1 spent in net purchases at grocery stores, drugstores and gas stations for 6 months
• Earn 1 rewards point per $1 spent on all other net purchases
• No Annual Fee

I currently do not have credit cards. So my questions are, is this something wroth getting? Should I put my mortgage payments / monthly utilities all together to maximize the points earned? Last question, should I get one that has reward points or one that does some sort of cash back?

Answer 1

First, I would avoid credit cards if you would be tempted to spend more than you can afford, or if you're not that organized and might forget some payments. Most issuers charge very high interest rates, so if you do get a credit card it's important to pay off the entire balance each month.

If you trust yourself to do that, getting a rewards card can be beneficial. They generally aren't accepted for really large payments like mortgage payments, since merchants pay fees (including a % of the amount) to charge credit cards. But you can earn rewards on most retail purchases, airfare, etc.

I would shop around for others besides the one your bank is offering. You might prefer a card which offers simple cash back, rather than points which can only be used for certain purchases. A lot of cards offer 1% cash back, and some offer as much as 2%, although there is usually a catch like an annual fee (often waived for the first year). Others offer different %s in different merchant categories.

Bonuses like the 20,000 points your bank is offering are also common, so shop around. Some cards offer cash bonuses, generally in the range of $100-400. But you have to consider whether you will spend enough in the first few months to qualify for those offers.

If you're very organized, you might eventually consider getting several cards - one with high rewards at gas stations, one for grocery stores, etc. You can also get a nontrivial amount of money from the sign-up bonuses. But keep in mind that it would be more trouble to pay off several cards each month (although it can be automated), periodically check each one for fraud, and so forth.

Answer 2

As with any line of credit, you'd want to pay off the balance on a monthly basis in order to avoid interest.

As far as making other payments on a credit card, it's often hard (if not impossible) to make payments toward a mortgage or other high-dollar items from a credit card. If you do indeed have the option to make mortgage payments with a credit card without an associated penalty (percentage, base fee), it'd be worth looking into.

Credit card rewards are straight-forward. Normally there are point-based shops that you can use to redeem reward points for physical items, vacations, and gift cards. They work in a similar fashion to any cash-based web store online (Amazon, etc).

Answer 3

Be careful on getting a card for its benefits in only a brief initial period.

It looks to me like you are getting a $200 bonus for $2000. Fine. Let's say you spend $1000/mo. The remaining 4 months, or $4000 in spending will net you $150 or so. Not quite 5% but gas and groceries are my biggest card bills so let's lean towards the 5% number.

$350 total, vs $120 a flat 2% card would give you (2% of $6000). I see this card as a "$230 bonus." But now you are stuck with a card that's not great. To Daniel's point, there are 2% cards, mine with no fee, reward total just over $22K over the last 15 years, and there are other cards with higher gas rebates on an ongoing basis.

In interest of disclosure - I grabbed a card that offered 10% back on drugstore purchases for 90 days. Those Visa Gift cards they sell near the register for a $5 fee? I charged $50K to buy 100 of those cards, and netted $4500. The card has no fee, but it now sits unused in the drawer. I'm not against a good deal, but consider what else comes in to play. The bank pulls a credit report, and your score drops a bit for 2 years until the inquiry falls off. Not a big concern, but if you are in this to "play the game" choose carefully to get the most back.