Have you ever had the feeling that credit card rewards are nothing but crumbs thrown along the way? That you just keep spending hoping at some point the crumbs are going to add up to a full cake? Well, that’s what rewards actually are. They might add up to a nice cake in the end – if you’re smart. But what generally happens is that most people tend to be extremely undisciplined and impulsive with their spending. More often than not the expenses and debt obligations they stack up will far outpace any rewards a credit card may offer. So, why is a good rewards program important?

Imagine while you were collecting the crumbs for your cake you had a full ant farm inside the bag you’re carrying the crumbs. At a certain point, not only you’ll have no crumbs left but the ants are going to start complaining you’re not feeding them right.

In this article we take a cold hard look at some reasons why companies offer rewards credit cards. What do these offers mean to you as a cardholder? How can you take full advantage of them without falling trap to less useful ones.

One of the things I’ve learned in game theory is that a casino may lose a couple of jackpots here and there, but in the long run they always win. This happens thanks to human behavior. Not any genius scheme or cheat, just plain human behavior.

Casinos win because we get greedy when we are winning. We keep playing games which don’t offer us an exploitable edge. Therefore, over the long run, most people will give back the jackpot. Not only that. They’ll leave their own money on the table.

When a bank or a credit card company offers you rewards, they know you most likely are never going to use it. They know you’re likely to get swayed by the glaring mileage and cashback opportunities. But they also know it’s highly probable you will never ever use them.

Credit card rewards aren’t meant to make clients’ lives better, just like casinos aren’t meant to provide entertainment and make people happier. Casinos and credit card rewards are meant to bring in business. If you’re not aware of that, you’ll fall trap to the first glittery rewards program you find without asking yourself: how much am I actually be able to enjoy them? 

If, on the other hand, you take the time to understand how credit cards’ rewards programs work, the pros of rewards programs, and how they fit your own individual needs, you will be able to make a very advantageous choice. You’ll be able to enjoy trips, shopping perks as well as offset an interesting portion of your spending through cash back.

But keep in mind rewards aren’t going to make you rich. If you come in with that mindset, you’re in for some real disappointment. Let’s keep it real, and dive a little deeper into how these benefits might be beneficial to you.

The first thing to consider when you think about any credit card is your own credit situation. Are you a frequent credit card user? If so, how’s your credit score? 

This is important because most credit cards with rewards require you to have good to excellent credit scores. The ones that don’t, usually offer mediocre rewards, if any. You will be better off coming up with a plan to improve creditworthiness before considering rewards.

Another reason for being aware of your credit situation is so that you don’t carry a balance on reward credit cards because they tend to have higher APR.

Knowing how much you spend on credit and what you spend with is also important because cash back programs can be counter intuitive. 

For example, some rewards credit cards offer a 5% cash back reward on a few rotating categories and 1% cash back on all other purchases. Others offer only 1.5% back on all your purchases. The 5% cash back seems appealing, but if the rotating categories don’t include things you spend with regularly, you’d be better off just getting the 1.5% back.

Not to mention the fact that rotating categories demand tracking work, and if you prioritize ease of use, that’s not something you will be willing to do. Which takes us to the next point.

I hope you’re not expecting me to start sounding like a life coach saying that you have to commit to your objectives and work hard to achieve them. 

That’s not what I mean by commitment. What I mean is that you need to know how much time and brain power you are willing to spend. You’ll need that to optimize your credit usage and get the most out of credit card rewards.

Quite often you will find that the best cash back rewards are present in the most complicated cards to manage. This may not be a problem to you, and you might actually enjoy finding ways to beat the casino.

But playing the game at this level often requires not managing one card’s rotating categories. But rather, it requires several cards at the same time. This is what I mean by commitment.

Last but no least, you should always know all your cards’ fees, if any. Ideally you want to avoid all of them. But sometimes, all other things considered, it might make sense to you to get a rewards credit card that charges you a fee. That has to be because the rewards far outpace the fees, otherwise it doesn’t make sense.

You should know, though, this hardly ever happens. Quite the opposite: fees, more often than not, far outpace rewards.

Whether you’re a regular traveler, a frequent shopper at a specific merchant, or are just looking to offset some of your spending through cash back, rewards credit cards can be your good ally. Take the time to learn about your own spending habits as well as about the card options.

And if you want to know all about the best cash back cards options on the market, follow the link below!