Financial Freedom

Would you like a free gift with your purchase? Reward cards are a great way to get tons of free gifts by doing what Americans do naturally – buy more stuff! No, this isn’t a scam because many credit card users have been doing it successfully for years. In fact, its one of the best methods to get some payback on those pesky credit card companies for flooding your mailbox (both email and snail mail) with constant advertisements for their latest credit card advertising campaign. So if you’re tired of “taking one for the team”, let me show you a sure fire way to make your money work for you and make the credit card companies pay your way to a free weekend in Cancun or add some extra cash to your bank account.

First, let me add in one quid pro quo. If you currently have credit card debt or carry a balance from month to month, you should essentially forget about getting any type of serious reward cards. However, its still possible to profit from a carry over balance if you absolutely have to carry one. It is a 99% bad idea to obtain a rewards card if you do not pay the monthly balance to $0.00 each and every month unless you find the right card (I’ll explain the 99% explained later). Let us use a real life example of a poor instance to use a rewards card.

Hypothetical: you want a free plane ticket from New York to Los Angeles. This fictitious ticket will cost you $300.00. Now lets assume the interest rate on your shiny new rewards card is 15%. For simple math purposes, lets say you carried a $1,000.00 balance each month for the first year, hoping that you’ll gain enough points to get that free flight within the first year of having the card. Guess what? You have effectively paid for half of the ticket price in interest charges because 15% annual interest on a $1000.00 balance is $150.00. Whereas, depending upon your reward points system, you’ve more than likely obtained a very meager reward point balance (5-10%) to even qualify for a reward ticket.

Now that you see how you have been duped, lets explain THE TRUTH behind how the business works. Credit card companies purposely dangle the opportunity of a “freebie something” and the unsuspecting consumer signs up. However, with the 15% interest charges (or >25% if you fail to pay on time) paid to them for your mistake in carrying a balance, the profits from the card are much greater than the cost of free airline tickets or the 5% cash back awards given to those consumers (like me) that maintain a zero balance every month. Their business model therefore generates an automatic minimum 10% profit if you consider that for every 1 person who carries a balance versus every 1 person who doesn’t. Rest assured that this value is not a 1 to 1 ratio because if it were, the credit card companies would most likely pull all of their reward card programs off the shelf due to increased customer reward payouts. They not only have very little probability of making a financial loss on this deal, but can retract their offer “at their discretion at any time without prior notice”. Talk about a great business model right? Worst of all, you likely got duped into paying an annual fee!

Luckily for most unsuspecting consumers, it is often difficult for low credit score individuals to obtain a rewards card. They are perk of a having good credit, but a person with reasonable credit scores can obtain a decent rewards card with very little search. Although, the premium reward cards typically require a very good to excellent credit score.

Still with me? Here is the good stuff because I’m going to show you several excellent credit cards with no annual fee, low or zero interest rates, and best of all real rewards.

The American Express Blue. This card features 3 versions at last count: a travel card for jet setters, a 5% cash back program, and a generic blue card that can be used for cash and travel. The Discover Open Road Card. For all you road warriors, this card gives you 5% back on all gas purchases. So now that your SUV takes $100 to fill up, you’re putting $5 back in you pocket. So what is a lousy $5 compared to a $100 fill up? Say you fill up twice a month for 1 year, which is equal to $2400.00 so you just saved yourself $120 bucks or 1.2 fill ups that year. For duel income families, gas can cost more than $200/month, so take advantage if this applies to you. The Discover More Card. This card allows you to gain cash back from the balance you carry up to 5%, and has a 0% interest for 1 year. So you get the 5% reward for signing up with Discover bottom line for 1 year. After that, you could just cancel the card or switch to another card program to eliminate any chances of paying a finance fee. If you’re seriously strapped for cash, look into this card further as it may just be a lifesaver if you’re paying 10-25% interest on your other cards.

The take home message is that when these programs are thoroughly researched, it actually pays you to use their services IF you are financially responsible and spend some time accurately following your finances. Remember, all of this information is available online so it benefits you to do your investigative work or find an online resource to distill the information for you (hint read my profile).

Personal Note: as always, questions/comments/concerns are always welcome. I have no affiliation with any of the cards mentioned in this article.