It’s a valuable proposition, but every sign-up bonus is different, and there are catches. Here’s what you should know about how these bonuses work before you choose a new card.
How You Earn Them
You earn sign-up bonuses by spending a minimum amount within a certain period, usually the first three months, after you’re issued the card. Some cards offer an extra sign-up bonus for spending even more in the first six months or year. For example, a travel rewards card might award you 50,000 bonus miles for spending $3,000 in the first three months or 75,000 miles for spending $6,000 in the first six months. Once you reach the spending threshold, the bonus usually takes a little while—maybe one or two billing cycles—to post to your account.
Cash Back or Miles
Generally, sign-up bonuses come in two flavors: cash back and travel rewards. Travel rewards might be called points, dollars, or miles, but they all refer to the same thing: units of currency that you can use for specific purposes.
Choosing the Best One
The first thing to consider when choosing a sign-up offer is whether your budget will comfortably allow you to earn it. You could go on a spending spree to meet the requirements, but that’s a bad idea. The last thing you want to do with a new credit card is start off being in debt. Instead, charge as many of your everyday expenses as you can and pay off your monthly balance on time. Next, consider the card’s annual fee, if there is one. Generally, the cards with the most valuable rewards carry the highest annual fees, although these fees are sometimes waived in the first year. If the sign-up bonus isn’t worth any more than the annual fee, you should be confident that the ongoing rewards you’ll earn will more than cover your costs. Finally, consider whether you’re able to manage multiple cards simultaneously if you already have an open credit card. Keeping track of several cards and making sure each one is paid on time can be a chore. If you’ve got rewards to manage on top of that, you may have to keep track of expiration dates and other rules. It can get complicated very quickly.
Catches To Watch Out For
Make sure you know which transactions count toward your spending requirement. Any purchases you return won’t qualify. Cards may exclude cash advances and balance transfers, too. Sometimes, purchases of “cash-like equivalents” such as money orders, cashier’s checks, and even gambling chips may not count.Make sure you cash-out any rewards you’re eligible to redeem before closing your account. In most cases, you will lose any remaining rewards otherwise.
The Bottom Line
Sign-up bonuses are a one-time opportunity, but they let you earn rewards quickly and can be quite lucrative on cards with low or waived annual fees. Consider your budget and your long-term plans before choosing a card based on its sign-up bonus. And make sure to read your credit card’s disclosure documents to avoid any pitfalls.
