14 Best Credit Cards for Rewards and Cash Back for 2023
Expert Advice For Finding the Right Card
Professor of Marketing for the Austin E. Cofrin School of Business at UW-Green Bay
What are the possible pros and cons of using a rewards card to make a large purchase and then transferring the balance to a balance transfer card?
Using a rewards card to make a large purchase and then transferring the balance to a balance transfer card may seem like an advantageous strategy to capitalize on inflation and rewards programs. However, this approach involves complexities and potential drawbacks that should be carefully considered before taking action.
- Interest-Free Loan: By taking advantage of balance transfer offers with 0% introductory APR, you can essentially secure an interest-free loan for a limited period. This could potentially save you money on interest charges, especially if you manage to pay off the balance within the introductory period.
- Rewards Points: Earning rewards points on a large purchase can significantly boost your rewards balance, providing redemption options for travel, merchandise or cash back.
- Credit Score Impact: Applying for a new credit card, even for a balance transfer, can temporarily impact your credit score due to a hard inquiry.
- Risk of Fees and Penalties: Late payments or failure to pay the minimum balance on the new balance transfer card can result in late fees and penalty interest, negating the potential savings.
- Overspending Temptation: This strategy may encourage overspending by incentivizing unnecessary purchases solely to gain reward points. Limited Savings: In reality, the net savings from this approach may be modest due to credit score impacts, application fees and balance transfer fees.
Alternative Approach: A more prudent approach is to avoid unnecessary expenses and prioritize saving and debt repayment. Consider using a high-yield savings account to accumulate funds for future purchases. Savings accounts currently pay around 4% annual interest. They also provide a safe and disciplined way to save without incurring debt or risking a credit score.
When transferring reward points to different airline or hotel loyalty programs, why does their worth vary?
The value of reward points varies when transferring them to different airline or hotel loyalty programs due to several factors: Each airline or hotel loyalty program has different redemption rates for their points. These rates determine how many points are required to be redeemed for specific rewards, such as flights, hotel stays or merchandise.
Some loyalty programs have more valuable partner partnerships, offering better redemption rates for travel on specific airlines or stays at specific hotels. The value of reward points depends heavily on an individual’s travel patterns and preferences. If a traveler frequently flies on a specific airline or stays at a particular hotel chain, then transferring points to those programs will generally provide higher value.
What are the possible advantages and disadvantages of adding authorized users to a primary credit card with regards to earning rewards?
Adding authorized users to a primary credit card can have both positive and negative implications, particularly concerning the accrual of rewards.
On the positive side, some credit cards report the credit scores of all users to credit bureaus. Consequently, by adding family members, such as school or college-going children, as authorized users, their credit scores may gradually improve over time. This approach serves as a beneficial strategy for boosting the creditworthiness of family members, providing them with a head start in their financial journey. Additionally, it allows you to monitor their spending habits, offering a means to instill responsible financial behavior.
However, there are notable drawbacks to consider. As the primary cardholder, you assume responsibility for repaying the amounts spent by authorized users. This can lead to potential financial strain if authorized users make excessive or imprudent purchases. Moreover, there is a risk that by relying on the primary cardholder, authorized users may not develop essential financial management skills on their own, missing out on valuable learning opportunities. Therefore, the decision to add authorized users should be carefully weighed, balancing the potential credit-building benefits with the associated financial responsibilities and educational considerations.