What rewards program is really worth it

Is 2% Cash Back Really Worth It? - 2021 - INVEST

"Mr. CC, I'm debating whether a cash back credit card or loyalty program is best for me. Is 2% cashback really worth it in the long run? It doesn't sound like much." Thx, AJ.

The important things first

We compare apples with oranges. Bonus points and cashback programs are different. In a cash back program (like programs from Discover), companies offer you a percentage that they simply pay out once or twice a year. It's a great way to get something back. If you forget the percentages, there will be a surprise check in the mail every now and then.

Of course it's worth it! Who wouldn't want to get a small check from your credit card company?

Rewards programs give you back points that you can redeem for products or services. However, some of them have caps for redeeming the points. For example, GM has a credit card that offers a percentage of points that can be redeemed for new GM vehicles. However, you cannot pay for an entire car with credit card points. Even so, you can cash in anywhere from $ 1,000 to $ 3,000 to buy a new car.

Remember, there is no limit to cash. If someone gives you this, you can spend it on whatever you want, and that's the difference between rewards programs and cash-back programs. I'm not saying reward programs are bad (I belong to one), but money can go where you want it. Like I said, they are really different. Let's see what you really want, right?

Know what you want

I'm not saying you need to know the meaning of life, psychologically predict when you will need a new car, or plan to shop online with credit card points for the rest of your life, but you do need to know what you want to do.

It's a simple question:

Should I just get the money back and do what I want, or do I want to use a rewards program that will help me buy something big like a vacation or a car? What about hotel room or plane ticket rewards? There are even some gas reward cards on the market.

You will almost always have a strong bias towards one or the other. If you are interested in a cash back program, you need to find out if you are getting a decent amount back. You may be able to achieve a higher return through a rewards program. Do your homework and see what you qualify for and then you can take a step.

So you're right, is 2% enough?

The raw numbers

The average American spends about $ 100 a week in the grocery store and about $ 50 a week watering their car. If you live in a place where gas prices have hit you, that number could be higher, but you have the idea. If you've never thought about how this line item looks on your budget, now is the time to find out. Without fixed numbers, you cannot predict exactly what you will get back from the card.

So we assume we will be “average” and use the card to make all of our gas and grocery purchases throughout the year. Of course, you buy things with cash on occasion, and you can put other things on your card too, but for now, let's stick with the basics.

Here's an example: If you spend $ 5200 per year on groceries ($ 100 per week) and $ 2600 per year on gas ($ 50 per week), you get $ 156 each year on a 2% cash back card.

If you do a simple multiplication, that means you'll get $ 312 in two years and $ 468 in three years. If you're planning on saving that money, probably not, but you can see the cashback dollars add up over time. If you're thinking about things that you enjoy, you might want to do something cool every year with this little check. It's "free" money after all, so you may want to have a plan. Remember this goes back to knowing what you want. Get an idea of ​​where you are going before diving in to chat about rewards.

Is it really worth it?

I know I said before that any amount of money is better than nothing and that is still true. Could you really get more elsewhere? Imagine a 3% cash back card like the Visa Signature from Bank of America. From then on, the math is completely different. Spend $ 5200 a year on groceries and get $ 156 back. Then you spend $ 2,600 a year on gas and get another $ 78 back. That's a one percent difference card, and it's up $ 78 dollars already! Don't you just want to get more back with another card? While there is a different APR, etc., if they were all the same you would choose the 3% card.

What if you: • Does not qualify for the Bank of America Visa signature • Or you may not qualify for anything other than the 2% card you found

Then we are worthy again!

Extreme thrift:

In some cases, you can combine your 2% cash back with coupons, discounts, store rewards, and loyalty programs and make things really worthwhile. So if you should say use coupons regularly and then use your cash back card when you go shopping for groceries monthly. It's like getting an extra 2% discount on top of the coupons. It's a really nice economical tool to use when you track it down and plan your finances to maximize returns.

Take into account everything we've talked about before making a decision and you will surely be happy with what you have chosen. Don't pick anything and regret it later when you finally find a better deal.