Key Takeaways:
- 72% of adults with credit card debt are trying to earn rewards.
- Experts warn that high-interest payments often outweigh the benefits of rewards.
- Paying off your balance in full each month is key to making rewards worthwhile.
Credit Card Rewards: Are They Worth the Risk?
Rewards credit cards can be tempting. Who doesn’t love earning cash back, travel points, or discounts on purchases? But a recent survey reveals a surprising trend: most people with credit card debt are still chasing these rewards, even though it might cost them more in the long run.
The Catch Behind Credit Card Rewards
Experts like Ted Rossman warn that rewards aren’t always a good deal. Here’s why:
- If you owe money on your credit card, you’re likely paying high interest rates.
- These interest payments can easily add up to 20%, 25%, or even 30% of your debt.
- Meanwhile, rewards programs typically offer just 1-5% back on purchases.
For example, if you spend $1,000 on a credit card with a 20% interest rate, you could owe $200 in interest. Even if you earn 5% cash back, that’s only $50 back. You’d still lose $150 overall.
Why Are People Still Chasing Rewards?
So, why do so many people with credit card debt continue to pursue rewards? There are a few reasons:
- Rewards Are Attractive Cash back, travel points, and exclusive discounts are tempting. They make spending feel like a win-win.
- Rewards Can Feel Free Many people believe rewards are free money. But the truth is, they often come at a cost—especially if you’re paying interest.
- Justification for Spending Some people use rewards as an excuse to buy more, thinking they’ll earn more points or cash back.
How to Use Credit Cards Wisely
If you want to earn rewards without falling into debt, here are some tips:
- Pay Your Balance in Full The only way to make rewards worthwhile is to pay your balance in full each month. This way, you avoid interest payments entirely.
- Choose Cards That Match Your Spending Select a rewards card that offers benefits for your everyday purchases, such as groceries or gas.
- Don’t Overspend for Rewards Buying something just to earn points can lead to unnecessary spending and debt.
- Understand the Terms Always read the fine print. Know the interest rate, annual fees, and rules for earning rewards.
- Consider a Low-Interest Card If you often carry a balance, a low-interest card might be a better option than a high-rewards card.
What Happens If You’re Not Careful?
Here’s the bottom line: if you’re not careful, rewards credit cards can lead to more debt. And debt can create a cycle that’s hard to escape.
Let’s say you have a $1,500 balance on a credit card with a 25% interest rate. If you only make the minimum payment each month, it could take years to pay off the debt—and you could end up paying thousands of dollars in interest alone.
Why Rewards Are Worth It (Sometimes)
Rewards aren’t necessarily bad. If you can afford to pay your balance in full each month, rewards can be a great way to earn extra perks. For example:
- You could earn cash back to save for a big purchase.
- You could rack up travel points for a free vacation.
- You could enjoy exclusive discounts or benefits.
The key is discipline. If you’re the type of person who can stick to a budget and avoid interest charges, rewards cards can be a smart choice.
The Final Word
Rewards credit cards can be a double-edged sword. On one hand, they offer exciting benefits. On the other hand, they can lead to