Credit Card

All Rewards Credit Card Programs Are Not Created Equal

Credit card rewards programs are all the rage. They promise big things, like free airline tickets, exclusive access to concert tickets, and hotel stays. It is all so enticing. A full third of Americans choose a credit card based on which offers the maximum card rewards, according to ComScore. And the Federal Reserve Bank of Boston notes that about 60 percent of all consumers currently own a rewards credit card. But, before you rush out to get one, realize they may not be worth it.

Types of Rewards Credit Card Programs

Take a look at some of the rewards credit cards available:

  • Cash back credit cards – These allow the individual to earn a percentage of  spent funds back in the form of cash. Some cut a check, but most apply the balance directly to the balance owed. Comparatively speaking, this is the best route to go if you want to use credit rewards programs at all.
  • Basic points cards – This type of card allows the cardholder to earn points based on purchases made. For example, you may earn one point for every dollar you spend. Then, you can redeem those points for things like gift cards or purchase merchandise through a specially designed website  (run by the credit card company.) The catch is, everything you can buy is very expensive.
  • Travel rewards cards – With these, you earn points redeemable towards  airline tickets, hotel stays, and discounts on other travel-related  events. However, you may have to choose a specific hotel or airline to fly on.

It may sound like these are some great rewards to earn, but what you may not realize is just how much you are paying for them.

The Reality

The consumers who benefit the most from these credit card rewards programs are those that pay off their balance prior to the end of the grace period (therefore not being charged an interest fee.) Otherwise, there are limited benefits. Consider the following.

Take a closer look at the credit card rewards programs and you will notice some troubling factors. First, consider how much you are earning. If you earn one point per dollar spent, realize you are not earning one dollar in rewards. In some cases, it can take two, five, or even more points to equate to one dollar in actual value. That means it may take you 40,000 points to earn $500 in travel-related discounts.

The real problem, though, with credit card rewards programs comes in when you determine the actual savings. In short, you may already be paying for what you are earning and therefore not getting a deal. These cards nearly always have higher interest rates than traditional credit cards. That higher interest rate more than pays for the rewards you earn. If, instead, you simply put the difference in interest savings into a savings account at your bank, you would earn a trip far faster. Additionally, you often pay annual fees for rewards programs. The cost of everything you are earning has already been factored in so even if you do not earn a thing, you may still be paying for it. Look for reward cards with no annual fees.

Select a rewards card based on your lifestyle. For example: (1) if you like traveling, pick the best travel rewards card, (2) if you buy a lot of gas, pick a rewards card that gives you the highest gas rebates, and (3) if you have many interests, pick a card that gives you the highest cash rewards. There is no point in getting credit card rewards that you will not likely use.

The bottom line is no matter which rewards credit card you choose, pay it off every month in full so you do not face interest charges. Otherwise, you are hurting yourself and defeating the purpose of having a rewards card.

The IBSS team


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Jim Tso wants to “give back” and share his 35+ years of successful personal money management experience to help others to achieve their financial goals. Jim created this InvestBetterSpendSmarter blog (IBSS) to provide you with free investing, planning, savings, retirement, and inspirational tips derived from his unique, innovative, and proven approaches to money management. He welcomes and appreciates your feedback.

Jim would also appreciate it if you would kindly share our IBSS website and blogs with your family, friends, and business associates. Thank you!

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