Debt Reduction Advice | Debt Reduction Advice

Credit card rewards are a popular way for credit card companies to attract new customers and reward existing card holders; however, not all credit card rewards are worth it. In fact, having a rewards-type credit card could cost you far more than the value of the rewards. Before accepting any type of credit card reward scheme, it is important you understand exactly what you are getting into.

APR: First, you should know that most credit cards that offer rewards have an average annual percentage rate (APR) that is demonstrably higher than a standard credit card. While the actual impact of the APR will depend on whether you retain a balance and how much, if you are someone who retains the balance, this inherent difference in APR could cost you thousands. Quite simply, most rewards programs simply do not justify the extra expense.

ANNUAL FEES: In addition to the extra cost posed by a higher APR, most rewards credit cards also have annual fees. Accordingly, even if you are able to generate the benefit from their rewards program that is in excess of the increased APR you would have to pay, you would still have the annual fee to contend with. Annual fees for reward credit cards can be as high as $200 per year, or more.

EXCLUSIONS: Further, there are also a variety of exclusions do you have to consider in order to evaluate the true value of a rewards program. Take, for example, many “cashback” rewards credit cards: the cash back may only be earned on certain purchases, big ticket purchases may be excluded, certain retailers may not be included, etc. In fact, typically only day-to-day type purchases are eligible for cash back rewards. If you are someone who only uses a credit card for larger purchases, you may actually receive no benefit at all from having such a credit card.

REDEMPTION: Lastly, in evaluating the credit card rewards program, you will have to consider the rules of redemption. While some credit card companies are quite liberal and how you can redeem the “cash” or points you have earned, others will be quite limiting. For example, you may or may not be able to redeem your rewards online; you may only be able to apply them through your credit card company; and you may be limited as to how much of the rewards you have earned you can apply towards merchandise, travel, or services. Further, you will also need to consider the fees that are unique to the redemption of your rewards. You could be charged a fee for redemption, the administration of your rewards account, shipping for any rewards merchandise you receive, etc.

The fact is that rewards credit cards are nothing more than incentive for you to use the credit card. Remember that in any case, your credit card company is still a business and is still looking to make a profit on you and your transactions. As such, credit card rewards are typically only worth it if you are somebody who uses your credit card for daily purchases and who is able to pay it off in full each month––no exceptions. Otherwise, expect to be hit with fees, interest charges, and administration fees that will quickly erode any benefit the card may have provided otherwise.

Credit card rewards are a popular way for credit card companies to attract new customers and reward existing card holders; however, not all credit card rewards are worth it. In fact, having a rewards-type credit card could cost you far more than the value of the rewards. Before accepting any type of credit card reward scheme, it is important you understand exactly what you are getting into.

APR: First, you should know that most credit cards that offer rewards have an average annual percentage rate (APR) that is demonstrably higher than a standard credit card. While the actual impact of the APR will depend on whether you retain a balance and how much, if you are someone who retains the balance, this inherent difference in APR could cost you thousands. Quite simply, most rewards programs simply do not justify the extra expense.

ANNUAL FEES: In addition to the extra cost posed by a higher APR, most rewards credit cards also have annual fees. Accordingly, even if you are able to generate the benefit from their rewards program that is in excess of the increased APR you would have to pay, you would still have the annual fee to contend with. Annual fees for reward credit cards can be as high as $200 per year, or more.

EXCLUSIONS: Further, there are also a variety of exclusions do you have to consider in order to evaluate the true value of a rewards program. Take, for example, many “cashback” rewards credit cards: the cash back may only be earned on certain purchases, big ticket purchases may be excluded, certain retailers may not be included, etc. In fact, typically only day-to-day type purchases are eligible for cash back rewards. If you are someone who only uses a credit card for larger purchases, you may actually receive no benefit at all from having such a credit card.

REDEMPTION: Lastly, in evaluating the credit card rewards program, you will have to consider the rules of redemption. While some credit card companies are quite liberal and how you can redeem the “cash” or points you have earned, others will be quite limiting. For example, you may or may not be able to redeem your rewards online; you may only be able to apply them through your credit card company; and you may be limited as to how much of the rewards you have earned you can apply towards merchandise, travel, or services. Further, you will also need to consider the fees that are unique to the redemption of your rewards. You could be charged a fee for redemption, the administration of your rewards account, shipping for any rewards merchandise you receive, etc.

The fact is that rewards credit cards are nothing more than incentive for you to use the credit card. Remember that in any case, your credit card company is still a business and is still looking to make a profit on you and your transactions. As such, credit card rewards are typically only worth it if you are somebody who uses your credit card for daily purchases and who is able to pay it off in full each month––no exceptions. Otherwise, expect to be hit with fees, interest charges, and administration fees that will quickly erode any benefit the card may have provided otherwise.