Author: Jason Steele / Source: Wise Bread
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Please visit our Advertiser Disclosure to view our partners, and for additional details.Earning credit card rewards is a great way to offset the cost of purchases you already make. But it’s worth calculating just how much those rewards are worth if you have to pay an annual fee on the credit card, or are trying to streamline your rewards strategy to focus on one or two cards that are most valuable for you.
While it may seem easy to dismiss all credit cards that charge an annual fee, many annual-fee credit cards are well worth the price of the fee. The trick is to figure out the value of a card’s rewards and benefits for you. When you know how much the card is worth to you, then it can be easier to decide whether to keep it. (See also: How to Decide if an Annual Fee Credit Card Is Worth It for You)
How to calculate the value of rewards
Credit cards offer rewards in the form of points, miles, or cash back. The value of cash-back rewards are the easiest to calculate, and many cash-back credit card issuers list the total cash-back rewards that you’ve earned during the last year on your statements or elsewhere in your online account.
But it’s more complex to calculate the value of the points or miles you’ve earned. To do so, you need to look at what you’ve been able to redeem them for in the past, or what you could redeem them for in the future. For example, you could look at the value of merchandise or gift card options available with a particular rewards program. Typically, these options will return a value of one cent per point, or perhaps less.
In particular, merchandise awards often max out at a value of one cent per point or mile, and that’s based on the product’s full retail price. Since you can often find products discounted in some way, you should base your valuations on the best price that you can find, rather than the full manufacturer’s suggested retail price. In fact, even gift cards are often available to buy at below face value.
Next, you should subtract the value of the rewards you could have earned…
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