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How To Make The Most Of Your Credit Card Rewards ProgramsMay 6, 2020
One of the perks of having a credit card is that with every swipe, you can earn rewards in the form of cash back, travel miles or points.
One of the ways in which you can redeem these rewards is by opting for a statement credit.
What is a statement credit?
In case of statement credit, the card issuer redeems your rewards by crediting the relevant amount to your account.
In other words, your balance is reduced by the amount of your statement credit, so that you owe less to the issuer.
Having said that, keep in mind that this does not free you of the responsibility of making minimum payments.
This is because statement credit is rarely applied towards reducing the minimum amount due on the card.
Statement credit in case of cash back credit cards
Let’s say your card offers you a 1% flat cash back on the amount you spend through it.
Now if you swipe your card for $4,000 in a certain month, you would be entitled to a cash back of $40.
If you were to redeem this reward in the form of statement credit, then your balance would be reduced by $40.
However, remember that your issuer may have certain clauses in place – for example, the company may require you to earn at least $50 in terms of cash back before you can redeem it as statement credit.
In that case, you must spend another $1,000, and only then would your balance be reduced by the amount of your reward.
Statement credit in case of travel credit cards
Travel credit cards allow you to earn rewards in terms of miles or points.
When you use your card for a travel purchase, you can reduce the amount owed on that purchase depending on how much you’ve earned as rewards.
Just as the case with cash-back cards, in case of travel cards, you may have to contend with minimum redemption amounts.
Also, the company may have restrictions as to what can, or cannot be defined as a travel purchase.
Having said that, many travel cards offer automatic credits on certain travel purchases – which means you don’t have to bother about opting in or making a request.
For example, you may receive an annual credit for airline or train tickets, hotel stays, baggage fees, airline lounge fees, etc.
It is important to go through the terms and conditions of your card carefully to understand what exactly you can expect when it comes to statement credit.
How to make the most of statement credit?
Statement credit can be a boon because it reduces the amount of money that you owe to the issuer.
However, there are certain things you must keep in mind.
When opting for a statement credit with respect to cash back, know that that money, in a sense is trapped.
If you were to receive the reward in the form of a check or deposit to your bank account, you would be able to use the money for any purpose – say to save or invest.
However, if you request a statement credit, then that money can only go towards reducing your balance.
Moreover, if you stop using the card or shut your account, you can lose any rewards that you haven’t redeemed.
So, it is advisable to opt for statement credit only if you don’t want to use the reward in any other way, and especially, if you plan to carry a balance.
That way, the reward can go towards reducing the amount due and help you save on interest charges.
Also, be on the alert - if your card offers benefits for choosing statement credit for cash back rewards, then also it can make sense to exercise that option.
For example, your issuer may have an offer where you get $55 for every $50 that you redeem as statement credit.
When it comes to travel credit cards, remember that there is often a conversion rate involved – for example, it can happen that 1 point is worth 1 cent when you redeem it as a gift card, but only .5 cent when you redeem it as statement credit.
In that case, it can make sense to redeem those rewards as a gift card instead.
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