March 05, 2013

How to get the most from credit card rewards programs

Can you actually make money with your credit cards? Many credit card companies have cash-back incentive programs. Essentially, this is how it works. For the purchases you make using a credit card, a percentage of that purchase comes back to you in the form of redeemable rewards.

Rewards programs really can put cash in your pocket, but there’s a caveat. The reason credit card companies offer these incentives is that they make money from collecting interest on outstanding balances. You can play the system, if you’re careful. If you pay off your balance in full every month, you can pocket a little profit for yourself.

Incentives range from one to five percent, depending on the company and the promotion. Sometimes, incentives are offered through a third-party, such as Amazon.com. Merchants may also offer a small discount when a consumer redeems points earned with a particular merchant.

So say you bought that fur coat or shiny new appliance, and in return got a whopping number of redemption points. Yet, unexpected events have a way of changing plans, and now you find an emergency depleted your bank account and you’re unable to pay that credit card off by the monthly due date.

Any savings you garnered through earning points just went up in smoke, as you face an annual 20-percent-plus interest fee. Ouch! Here’s the take-home lesson: If you’re going to play the credit card merchants for incentives, be sure you can pay the piper, before the grace period expires.

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