Glossary Terms
Plum - Rewards, Incentives and Payouts Platform
- What are credit card rewards?
- How do credit card rewards work?
- What are the different types of credit card rewards?
- What are the factors to consider when choosing a credit card for rewards?
- What is the best credit card for rewards?
- How to maximize credit card rewards?
- What are the risks and considerations while using credit card rewards?
- Are credit card rewards taxable?
- What are cash rewards on a credit card?
Credit card rewards
Credit card rewards refer to the incentives provided by credit card issuers to their cardholders for using their cards for purchases.
These rewards can come in various forms, including points, miles, or cashback, and they offer cardholders the opportunity to earn benefits such as travel perks, merchandise, statement credits, or even cash rebates.
What are credit card rewards?
Credit card rewards are incentives offered by credit card companies to encourage cardholders to make purchases using their credit cards.
These rewards typically come in the form of points, miles, or cash back, which can be redeemed for various benefits such as travel, merchandise, statement credits, or gift cards.
How do credit card rewards work?
Credit card rewards work by offering incentives to cardholders for making purchases with their credit cards.
Cardholders earn rewards based on their spending, typically in the form of points, miles, or cash back, which can then be redeemed for various benefits according to the terms of the credit card rewards program.
What are the different types of credit card rewards?
The different types of credit card rewards are:
- Points-based rewards: Points-based rewards programs allow cardholders to earn points for every dollar spent. These points can then be redeemed for various rewards, such as travel bookings, merchandise, or statement credits. Popular examples include Chase Ultimate Rewards and American Express Membership Rewards.
- Miles-based rewards: Miles-based rewards programs, often associated with travel credit cards, reward users with miles for their spending. These miles can be redeemed for flights, upgrades, hotel stays, and other travel-related expenses. Users can accrue miles either through specific airline loyalty programs or through general travel rewards programs.
- Cashback rewards: Cashback rewards provide users with a percentage of their spending back in the form of cash. This can be in the form of percentage-based cashback or flat-rate cashback. Cashback can often be earned in specific categories, such as groceries, dining, or gas purchases.
What are the factors to consider when choosing a credit card for rewards?
When selecting a credit card for rewards, consumers should consider various factors to ensure they choose the card that best fits their spending habits and financial goals. These factors include:
- Annual fees: Consider whether the rewards and benefits outweigh the cost of the annual fee.
- Sign-up Bonuses: Evaluate the value of sign-up bonuses and any requirements to earn them.
- Earning rates: Compare the rewards rates for different spending categories and assess how they align with your spending habits.
- Redemption options: Look into the flexibility and value of redemption options offered by the credit card issuer.
- Cardholder perks: Take note of additional benefits, such as travel insurance, airport lounge access, or purchase protections.
- APR and other fees: Understand the interest rates and fees associated with the credit card to make informed decisions about borrowing.
What is the best credit card for rewards?
Similar to travel rewards, the best credit card for overall rewards can depend on individual factors.
Cards like the Chase Sapphire Preferred, the Citi Double Cash Card, and the Capital One Venture Rewards Credit Card are often considered among the best for their overall rewards programs.
How to maximize credit card rewards?
To maximize credit card rewards, cardholders can employ various strategies to earn more rewards and get the most value from their redemptions. These strategies include:
- Spending strategically: Focus spending on bonus categories or using specific credit cards for high-reward purchases.
- Taking advantage of bonus categories: Utilize credit cards with rotating or permanent bonus categories to earn higher rewards rates on common expenses.
- Utilizing shopping portals and bonus offers: Earn additional rewards by shopping through credit card issuer's online portals or taking advantage of bonus offers and promotions.
- Pooling rewards: Combine rewards from multiple credit cards or loyalty programs to maximize earning potential and flexibility.
- Redeeming efficiently: Optimize the value of rewards by choosing redemption options that offer the highest value per point or mile.
- Avoiding pitfalls: Practice responsible credit card use by paying balances in full, avoiding unnecessary fees, and monitoring spending habits.
What are the risks and considerations while using credit card rewards?
While credit card rewards can offer significant benefits, it's essential for consumers to be aware of potential risks and considerations, including:
- Credit score implications: Opening and closing credit card accounts can impact credit scores, so it's important to manage credit responsibly.
- Financial habits: Be mindful of how credit card rewards may influence spending behavior and financial habits and avoid overspending to earn rewards.
- Managing credit responsibly: To avoid debt and interest charges, cardholders should pay balances in full and on time and avoid carrying a balance whenever possible.
- Staying informed: Keep up-to-date with changes to rewards programs, terms, and conditions to ensure you continue to maximize the value of your credit card rewards.
Are credit card rewards taxable?
In most cases, credit card rewards earned from purchases are not considered taxable income by the IRS.
However, rewards earned through bonuses or promotions, such as sign-up bonuses, may be subject to taxation. It's always best to consult with a tax professional for personalized advice.
What are cash rewards on a credit card?
Cash rewards on a credit card refer to the cash back incentives that cardholders earn for making purchases with their credit card.
These rewards are typically a percentage of the purchase amount and can be redeemed for statement credits, checks, or direct deposits into a bank account.
