How to Maximize Credit Card Rewards

If you pay off your credit card bills like clockwork every month, it may be time to upgrade to a rewards credit card. You will earn rewards for those good spending habits and it may not cost you a thing as long as you continue to pay off your bill in full each month.

There are all sorts of rewards from which you can choose, from travel rewards to cash back, and some cards offer bigger rewards for shopping in certain categories. So if you find yourself spending a lot of money on, say, groceries, you may want to pick out a card that gives bonus rewards for that spending.

"Generally, there are two types of rewards cards: cash-back cards, and points and miles cards," says Matt Schulz, the chief credit industry analyst at LendingTree in Austin, Texas. "From there you can find a million different variations, but at a basic level, that's what you're choosing between." Data has consistently shown that cash-back cards are the most popular with the average American, he adds.

Chris Fred, head of credit cards and unsecured lending at TD Bank in Highland Mills, New York, says consumers may be drawn to cash-back rewards cards for their simple rewards structures.

"Specifically, cash back credit cards are useful due to their simplicity and tangible rewards, allowing you to earn money back on (your) spending," Fred says. The rewards can be redeemed as statement credits, direct deposits to bank accounts or checks, providing flexibility in how you use rewards.

"Some cash-back cards offer bonus categories with higher cash-back rates, making them attractive options for maximizing rewards on specific types of purchases, such as groceries, gas or dining," he adds.

Here's some advice on picking out a rewards card.

"When choosing a rewards credit card, start by considering your spending habits," says Jennifer Doss, executive editor of CardRatings.com in Austin, Texas. "If you consistently spend a lot in certain categories, look for a card that offers bonus rewards in those areas."

"How a card earns rewards is also key," she adds. "If you're willing to put in a little effort, you could earn more with a card that offers tiered or rotating category rewards. These cards offer higher reward rates in select categories and lower rates in others, or the bonus categories may change quarterly. However, if you prefer a more hands-off approach to rewards, a flat-rate rewards card might be a better fit."

Some rewards cards come with annual fees. You'll want to weigh the costs of these cards carefully.

"Fees are another important consideration. While excellent no-annual-fee credit cards exist, don't automatically dismiss a card with an annual fee. Often, the card's rewards system can easily offset this fee. However, if you don't plan to use the card frequently, a no-annual-fee option might be preferable," Doss says.

Some consumers also should consider foreign transaction fees. "If you travel internationally often, prioritize a card that waives these fees," Doss advises. "Otherwise, you could end up spending hundreds of extra dollars on your next trip abroad."

If you love to travel, a travel rewards card may be right for you.

"There are two types of travel rewards cards: ones that earn flexible or transferrable currency cards and ones that earn points or miles with one particular  airline or hotel chain, like United Airlines or Marriott," says Chris Nelson, associate credit cards writer at The Points Guy in Portland, Oregon. Some of these cards have no annual fee and others have annual fees of as much as $695 a year, he says.

Lots of travel rewards cards come with perks. So if you like a little extra when you travel, consider a travel rewards card.

"If you want more perks like lounge access, statement credits and elite status benefits you may want to opt for a travel rewards card," Nelson says. "These rewards earned can be redeemed for travel, and if you have a flexible-rewards card, you can transfer those reward points to partners to get even more value."

Nelson offers these tips for maximizing the value of a travel rewards credit card.

"First make sure you are paying your bill in full every month. If you are paying interest, you negate any benefits from the rewards earned," Nelson says. "If you have a credit card with an annual fee, try to find one where the benefits provide more value than the annual fee cost. Make sure you use all the benefits provided from your card. Reading the fine print and terms and conditions can help you discover many benefits you may not have known about."

Don't choose a travel rewards card just because it's popular. "Make sure the card works for you. Just because a card is popular doesn't mean it may be the best fit for you," Nelson says. "Maximize the bonus categories on the card."

Don't forget to book your next trip with your travel rewards card. "Book travel with your travel rewards card, as these cards come with travel insurance and protections that can save the day if your travel plans go awry," Nelson says.

It is easy to get excited about having a rewards card and to charge away with your spending to earn rewards. But don't make the mistake of overspending.

"There are so many possible mistakes. One of the biggest is overspending in pursuit of credit card rewards," Schulz says. "Don't ever do that. If you do, any rewards that you earned will be quickly outweighed by the interest you'll pay on that card balance. The math simply doesn't work in your favor."

You'll also want to study the terms of a signup bonus carefully. Will you spend enough on your card to earn the bonus?

"It is important to understand that credit card signup bonuses are really sign-up-and-spend-x-dollars-in-x-months bonuses. If you don't spend the minimum required amount, you won't get that bonus," Schulz says. "Those spending requirements put a lot of pressure on people to spend, sometimes above what they're comfortable with, and that's a really bad idea."