When every credit card has a unique benefit, how do you decide which ones to carry? Let's look at how to get above average rewards on gas, air travel and clothing purchases without carrying numerous specialty credit cards.
TUTORIAL: Credit Cards: Introduction
Gas is an ongoing expense for most households, so it's natural to want to get as much as you can out of money you have to spend no matter what. The obvious solution is a gas station credit card - but is this card the best option?
The ExxonMobil MasterCard, for example, offers 15 cents back per gallon on gas. Since this reward isn't a percentage, it's worth more in places where gas is less expensive (like Missouri) and less in places where gas is more expensive (like Hawaii). At today's national average gas price of $3.47/gal. according to AAA's Fuel Gauge Report, 15 cents back is equivalent to 4.3% back - a substantial sum. The card also has no annual fee. Assuming you pay your balance in full and on time every month, it's hard to argue with this reward. (For related reading on credit cards, see Understanding Credit Card Interest.)
However, unless you purchase all of your gas at an ExxonMobil station and don't have to drive out of your way to do so, you're not really going to get 4.3% cash back on all of your gas purchases by having this card. You also have to consider how the price of ExxonMobil gas compares to the alternatives on your driving route. If it's not the cheapest gas station, the value of the cash back reward diminishes. And at some stations, you'll get the lowest price by paying cash.
Instead of a card that you have to use on a particular brand of gas to get rewards, consider a card that gives you cash back on any brand of gas. Discover usually offers 5% back on gas purchases for three months of every year; the Chase Freedom card does, too. In months when these promotions aren't available, you can use a card that offers 1% back on all purchases. You'll still earn meaningful cash back rewards, but you'll have credit cards that can be used anywhere.
Instead of a frequent flyer credit card that offers one mile per dollar (a value of approximately 1 cent), get a card that offers 1% back on all purchases. The monetary value of the reward is the same, but you'll have more options for redeeming your bonus. Another option is to get a card that lets you redeem your points for air travel on any airline.
The Chase Sapphire credit card, for example, offers more flexibility than many frequent flyer cards. Instead of redeeming your rewards on only one airline, you can redeem them on numerous airlines. Points also go 20% further when you redeem them for travel, so a $500 flight only costs $400 worth of points, or 40,000 points. You can also transfer points on a 1:1 basis to your existing frequent flyer and hotel loyalty accounts. In addition, like many frequent flyer credit cards, the Chase Sapphire card offers double points on airfare and hotel purchases, though you must book online to get this benefit.
Discover and Chase Freedom also offer 5% back on travel for three months of the year, but these may not be the months when you need to purchase travel, and the 5% back is capped at several hundred dollars in purchases for Discover and $1,500 in purchases for Chase, which might not cover all of your expenses. (For more, see How Credit Cards Affect Your Credit Rating.)
Many clothing stores offer credit cards that give customers points that accumulate toward dollar-off discounts on future purchases. For example, the Gap family of stores offers five points per $1 spent at its stores and a $10 reward coupon for every 1,000 points earned. In other words, for every $200 spent at the Gap family of stores, customers get $10 off a future purchase, which is sort of like getting 5% cash back.
However, if you shop online, you can earn similar rewards by purchasing your clothing through a cash back link. For example, ShopDiscover offers 5% back, eBates offers 10% back, American Airlines' AAdvantage Shopping Mall offers three miles per $1 spent and the Thank You Bonus Center offers three points per $1 spent. Clothing is also one of Discover's rotating 5% back reward categories.
With each of these promotions, the rewards are similar to having the store credit card, but, again, you'll have more flexibility in redeeming your rewards and fewer credit cards to manage. Having fewer cards to manage means that you're less likely to miss a payment and end up paying interest charges and late fees that cancel out your rewards.
What you don't get with a generic credit card are the occasional additional discounts that store credit cards offer. Also, these rewards aren't available for in-store shopping. On the other hand, you also won't be tempted by additional offers to spend more money.
The Bottom Line
You don't have to carry a million credit cards to get specialized cash back rewards. You may not get the absolute maximum possible rewards, but for most people, the loss is minimal and the convenience of not having to manage a card for every gas station, airline and store you frequent is worth it. (For related reading, see How To Establish A Credit History.)
InvestingIf you are a foodie then explore one of these destinations in 2016.
Credit & LoansAdjustable rate mortgages can save borrowers money, but they can't go into it blind. In order to benefit from an ARM, you have to understand how it works.
Credit & LoansDiscover how the Walmart MoneyCard and the Walmart credit card have different benefits that may influence your decision on which one to choose.
SavingsLearn 10 key habits for achieving financial freedom, including smart budgeting, staying abreast of new tax deductions and the importance of proper maintenance.
Credit & LoansIt'll cost you more, but borrowing is definitely doable. Here's how to proceed.
SavingsAirline fees can vary tremendously. We've compared them side-by-side – along with Amtrak's new charges – to determine who charges the most (and least).
Credit & LoansTerms can vary tremendously, so you better shop around, both in person and online.
Credit & LoansNeed a personal loan? You may stop by one of these big banks for help. Their offerings vary in size, rates and loan types, which means you have options.
Credit & LoansIf you are seeking a personal loan, be aware of these pitfalls before you proceed.
Credit & LoansHoliday expenses can drown you in debt. Find out how to avoid this festive spending hangover.
The best way to get the most out of a credit card rewards program is not to carry a balance on the card or miss a payment, ... Read Full Answer >>
Walmart offers two types of credit cards: the Walmart MasterCard and the Walmart credit card. How to Close Your Walmart Credit ... Read Full Answer >>
As globalization continues to force businesses to streamline their operations to ensure their long-term competitive positions, ... Read Full Answer >>
Generally, the Federal Housing Administration (FHA) does not insure more than one mortgage per borrower. This is to prevent ... Read Full Answer >>
The Walmart credit card does not charge annual fees to its cardholders. It does, however, have other fees associated with ... Read Full Answer >>
NetSpend works with PayPal; a PayPal account can be linked to a NetSpend account, and vice versa. Also, PayPal allows its ... Read Full Answer >>