How to develop a rewards program strategy….
I have spent countless hours pondering this exact question and getting asked this question by many of my friends. Many co-workers and friends alike are intrigued at the amount of time and “number” running that I have done to find the best cards and programs that will help me with my goals. It is only when I start bringing up terms like “spend profile” do I get a really hard time. I hope with this post that I will be able to provide insight on how to develop a rewards program strategy.
Understand your goals…
The first thing you have to do before you even start applying for credit cards is determining what your goals for the rewards you are trying to earn. Do you want to get cashback as your rewards? Do you want to bank frequent flyer miles or hotel points? Do you want to save points for a specific product like a big screen tv or computer? Most people choose cashback or some frequent traveller program. Most don’t try to earn points to redeem products because the redemption rates are very unfavorable and it usually easier to buy the product you want. Be aware that each type of card has their own individual pitfalls so its best to look at the terms of the programs very closely.
Understand what you spend your money on…
After you know what you want to do with your rewards, you need to understand where you spend your money. Some credit cards give bonuses for gas or grocery purchases. It is important you understand this. I have coined the term spend profile. If you know that you spend the majority of your money towards gas and groceries, this will help you focus on cards that give more points or cashback for gas and grocery purchases.
Understand your current rewards programs…
Maybe you already focused in on a certain rewards program or you can project that you will be flying a certain airline a lot this year or you will be staying at a certain hotel chain many nights this year or maybe you already have miles or points built up with a certain rewards program. If this is the case, you may be interested in continuing to earn points in that program or taking advantage of a signup bonus to get your points to a certain balance. This will also be a factor in your decision process to determine which cards to apply for.
Have a primary and a secondary card…
Determine what your primary credit card will be. This is the card where most of your purchases will be charged to. This will be the rewards program that you want to earn the most points in. Since there are always draw backs to rewards cards, your secondary card will be there to help reduce most of the drawbacks and can be used when certain situations are met. For example, say your primary card earns hotel points and your secondary card earns cashback, but has a feature that does not charge foreign transaction fees when you are overseas. You would use this secondary card when you travel overseas or when your primary card might not be accepted.
Next steps…
Once you understand your goals, develop your spend profile, factor in your current rewards program earnings, and determine your secondary needs, this will help focus your search on the “right” credit cards for you. These factors may not be weighted equally. It may be the case that you have 200,000 points in a certain program and you want to continue earning points with that program even though you may spend the majority of your purchases on gas and groceries. There will be compromises that you will have to make. You will have to decide which is more important to you. In my next post, I am going to discuss my specific credit card strategy and why I like the Starwoods Preferred Guest American Express card and the Schwab Invest First Visa Signature card.
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I have run my own estimations, and nothing really compares to cash back cards that pay out monthly/quarterly. While accumulating points is neat, the fact is the issuer can always change how many points you need to get a “reward” before you earn it. For example, most airline require 25,000 to 40,000 miles for an awards reservation, at $1/mile, it takes most people a long time to accumulate those points, at which time the needed miles may have increased. With other points cards, the price you actually pay for things is MSRP or greater. The AMEX store really doesn’t have many good deals if you compute the cost per point and the points per thing you want. For most people, just taking the cash back regularly is probably the best option.
In general I agree, but I think it also depends on your situation. My personal take on airline miles is that you shouldn’t redeem them for anything except business class seats. That’s where you will get the most value for your points. However, I highly value the flexibility of the starwoods points and have a very specific purpose in mind for those points. I’ll try to explain why starwoods points could even beat your cashback card and the pitfalls of airline miles and AMEX points in my next post on this subject. Just a note with any credit card rewards program, the terms and conditions can change at any time, so its not just the airline cards that could hurt you, but I know you are trying to saying better to get your cashback monthly than bank your points and wait to redeem the reward.
[...] usually leads to a longer discussion about goals and what they want out of their rewards. In my post regarding developing a rewards strategy, I tried to lay out the steps a person should consider when [...]
[...] In previous posts about credit rewards strategies, I’ve talked about how to develop a rewards strategy, discussed why I use the Starwoods American Express and Schwab Visa as my primary cards, and talked [...]
[...] (from Tim’s Adventures) is the only other travelblogger that I’ve come across who obsesses over the best route to developing a rewards program strategy as much as I do! He’s spent countless hours pondering this exact [...]
[...] come up with a Starwood’s Preferred Guest card as “the best card for travel” (here and here are two examples). After reading several posts, I decided there needed to be a [...]
[...] step back and think about what you want to get out of your credit card rewards. Pointing back to my developing a credit rewards strategy post, the first step is to figure out your goal. It is entirely possible that the SPG American Express [...]
This was a good discussion. You have helped me clarify the conversation my wife and I have been having on this. It did not help that my largest collection of points was washed away by the issuer as a result of the recession.