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Are Rewards Credit Cards Worth It?

Are Rewards Credit Cards Worth It?

Key learning points

  • Rewards credit cards allow you to earn points, miles or cash back on your everyday purchases.

  • There are many different types of savings cards available, so choose a card that suits your spending pattern.

  • If you’re still building credit or paying down your credit card debt, you may want to consider alternative cards that don’t offer rewards but may offer easier eligibility or allow balance transfers.

Rewards cards are popular for a reason: You can get cash back or travel points for purchases you would make anyway. If you use a rewards credit card responsibly, you can save money on flights, hotels, dining out, concert tickets and more.

But not everyone knows how to maximize their credit card rewards. What type of rewards card best suits your needs? How do you earn a sign-up bonus? What are the best ways to redeem your rewards?

In most cases, rewards cards are worth it — as long as you don’t carry a balance and the annual fee is less than the value of the rewards you earn each year. I spoke with Rick Conyers, Assistant Vice President of Credit Card Products at Navy Federal Credit Union, about some considerations for rewards cards.

Benefits of rewards cards

The value of a rewards card depends on whether you use it responsibly — and that means taking advantage of all the rewards you earn. Here are a few factors that make rewards cards worth it:

  • Rewards on daily purchases: The biggest advantage of using a rewards card comes, of course, from the rewards you earn. The best travel rewards cards earn points or miles on every purchase, while the best cash back cards earn cash back on everyday spending.
  • Welcome Bonus: Rewards cards that offer a welcome bonus, also known as a welcome bonus, allow you to earn rewards after becoming a new cardholder and spending a certain amount within a certain time.
  • Options for redeeming travel credit: If you jet-set often, a travel rewards card can help you earn points or miles for flights and hotels. They can also include perks like elite status, travel insurance and statement credits.
  • Cashback redemption options: People who like to spend money on going out or simply use their card to pay for everyday expenses can take advantage of cashback rewards. Flat-rate cashback cards earn the same amount on every purchase, while bonus category cashback cards earn more points in certain purchase categories. Whether you want a flat-rate card or a bonus category card depends on your spending habits.

Conyers says your lifestyle plays a big role in choosing a rewards card. “I encourage everyone to look at what they typically spend money on and make sure what they choose fits their lifestyle,” he says.

His family of five doesn’t travel often, but they do enjoy family outings. That’s why Conyers uses his cashback card for their regular spending. This summer, he and his kids are using cashback to go to the movies.

“We spend money and use the money we get back to pay for things that we don’t do that often during the year,” he explains.

Light bulb

Bankrate’s Opinion: There are many rewards programs to choose from. After you examine your spending habits and how willing you are to strategize about rewards, you can choose the right card for you.

Disadvantages of reward cards

Like all credit cards, rewards cards also carry potential risks that you should consider before applying, such as:

  • Spending too much to earn rewards: It can be tempting to spend more than you can afford to maximize your rewards or earn a welcome bonus. In fact, 2 in 3 Americans (67 percent) chase credit card rewards while in debt.
  • Untapped value: If you’re not actually redeeming your rewards, you’re leaving money on the table. And some redemption options are less valuable than others, so it can be hard to maximize the value of a rewards card.
  • High interest rates: Credit card interest rates are at an all-time high, and rewards card interest rates are often high, too. If you don’t pay off your balance in full each month, the interest you accrue could be higher than the value of your rewards. “Think about the cost of carrying debt on a rewards card,” Conyer advises.
  • High annual fee: Many rewards cards charge an annual fee. When considering a card with a high annual fee, ask yourself if you can use the rewards and benefits that come with it. If not, “that annual fee is going to lose some of its luster,” Conyers says.
  • High Credit Score Requirements: Rewards cards may also require you to have good or excellent credit. Keep in mind that card issuers will conduct a thorough credit check when you apply for a new card, which will negatively impact your credit score. So it’s good to know if you’re likely to qualify before you apply, especially if you plan on applying for other loans in the near future, such as a mortgage or car loan.

“There are always a few signs you should look for so you don’t regret your purchase when it comes to a rewards card,” Conyers says. “I encourage people to think about the long-term plan they have for the card they’re considering.”

Light bulb

Bankrate’s Opinion: It’s worth checking the interest rates, annual fees, and credit score requirements for potential new rewards cards before you apply.

Is a rewards credit card right for you?

With so many rewards programs, it can be overwhelming to decide whether a rewards credit card is right for you and what type to get. Here are the times when a rewards card may or may not be worth it:

When It’s Worth Getting a Rewards Card

If you don’t already have a good rewards card in your wallet, you could be leaving money on the table, especially if you travel frequently, buy groceries a lot, go to the gas station often, or make purchases that earn you points.

For example, applying for one of the best grocery credit cards can give you cash back on eligible grocery store purchases. Using one of the best dining out credit cards means you can earn cash back on restaurants and takeout. And if you’re going on vacation soon, you should consider a travel rewards card.

When It’s Not Worth It to Get a Rewards Card

If you have a poor credit score or limited credit history, it may be difficult to qualify for a rewards card. Instead, focus on using a starter credit card responsibly to build your credit.

And if you already have credit card debt, it’s not a good idea to take on more debt to earn rewards. Make paying down your current card balances a priority, as the interest you’ll accrue will likely outweigh the value of any rewards.

Alternatives to rewards credit cards

While many people want to earn rewards with their credit cards, it’s worth noting that there are other types of cards available. The following cards may be a better fit for a rewards credit card, depending on your credit score and financial situation:

Credit cards for people with bad credit or no credit

People with poor credit or no credit at all can apply for one of the best cards for people with bad credit. While these cards typically don’t offer many rewards or benefits, they can be easier to qualify for. After you’ve built up credit through responsible use, you can upgrade to a card with more benefits.

Credit cards for balance transfer

If you have existing credit card debt, you may be better off with a balance transfer card. The introductory 0 percent APR period can give you time to pay off the balance and avoid interest charges.

The Citi® Diamond Preferred® Card* is one of the best balance transfer cards on the market — and it saves you more money than a cash back card if you have credit card debt. This card doesn’t offer rewards, but it does offer a 0 percent introductory APR for 12 months on purchases and 21 months on balance transfers. After that, the variable APR is 18.24 percent to 28.99 percent, based on your creditworthiness. Balance transfers must be completed within four months of account opening to qualify for the promotional rate.

Payment cards

If you’d rather not use credit, a debit card is the modern version of cash. Debit cards are linked to your checking account. They’re usually free to use and make it hard to overspend. It’s rare for a debit card to offer rewards, but there are a few options available, such as the Discover Cashback Debit. If you apply for and are approved for a free Cashback Debit checking account, you can use your debit card to earn 1 percent cash back on up to $3,000 per month.

it comes down to

While rewards credit cards have their pros and cons, getting a rewards card generally comes with more perks than a non-rewards card — as long as you use it responsibly. But if you don’t maximize your rewards, you could be missing out on money to spend on travel bookings, retail purchases, and more.

Looking for the right rewards credit card? Bankrate’s CardMatch tool can help you find cards that fit your credit history, spending habits and financial goals.

*Citi® Diamond Preferred® Card information is independently collected by Bankrate. Card data has not been approved or reviewed by the issuer.