You did all of your research and after hours of looking at the many different options, you settled on what you think is the perfect rewards credit card. You considered all of the terms, you read the fine print that seemed to go on forever, and you found the card you like. There's only one thing left to do: Figure out exactly how good of an offer those rewards points really are.
How do you calculate rewards points? The answer to that is, like everything else in life, it depends. It depends on what type of rewards they are. Let's take a look at a few different types.
Rewards based on points:
This type of reward pays you one point for every dollar you charge to your card. Many will give you a gift card when you reach a certain number of points. Let's assume that you found a card where after 5000 points they send you a $50 gift card. This is easy to figure out. Divide 50 by 5000. That means that every dollar you spend is equal to one cent. You're getting a 1% rebate.
Calculating the rewards points on this offer is easy too. If the terms say that you will receive a 1% reward for every dollar you spend, multiply the amount you have charged times .01 and that is your reward. If you have spent $10,000, your reward is $100. Watch for sliding scales. Some cards will offer 0.25% cash back for your first $1,000 in purchases each year, 0.50% for your second $1,000, and 1% only after you've charged $2,000 during the year. If you do the math, you will find that this deal is worse than a straight percentage.
This gets a little tough because you're going to have to estimate. If you know which flight you will use your frequent flyer miles for, divide the expected price of that flight by the number of miles needed. If you get one mile for every dollar you charge to your card and 25,000 miles are needed for a round trip flight and the flight costs $400, what you do is divide 400 by 25,000. You're getting 1.6% back for every dollar you spend. That's better than the 1% cash reward we found earlier.
Now that you know how to calculate rewards points, no matter what kind they are, you are able to compare each card side by side. We can see above that if we had one of each type of reward card to compare, the best card, strictly based on rewards points, is the airline miles card.
Of course that's not the end of the comparison. The annual fee can be a significant expense. Before we start benefiting from the rewards points, we have to spend more than $10,000 before seeing much benefit if we're averaging about 1% in rewards. There may be other perks of the card that will pay back some of the annual fee so make sure to evaluate everything and make sure the benefits you receive outweigh the annual fee.
Article Directory: http://www.articletrunk.com
Start earning cash back on your credit card purchases with cash back credit cards.
Please Rate this Article
Not yet Rated