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Low Interest vs. High Rewards: Which Should You Go For?

Michael Dolen

February 26, 2013

In today’s guest blog, Michael Dolen of CreditCardForum explains why you’re not likely to find a card with both a great sign-up bonus and a long 0 percent period — and how to choose between these two perks.

Whether it’s a lingering debt hangover from the holidays or just wanting to find a better rewards program, the first part of the year is one of the most popular times to apply for a new credit card.

As a result, card issuers are offering a plethora of great sign-up incentives, featuring low interest rates and big rewards bonuses. For example, you can find 0 percent APR card offers for up to 18 months or 40,000 bonus points deals.  Unfortunately, however, you’re not going to score both a long interest-free period and a juicy bonus offer at the same time. Here’s why…

Reason No. 1: Zero percent offers cost banks money

Granted it’s not a lot these days, but banks still have to pay interest on the money they borrow and then lend out to you in the form of a 0 percent offer. Because the bank is already taking a hit on these offers, it’s much less inclined to take another hit by also giving you a cash or points bonus.

Reason No. 2: Two different types of customers

It’s true that everyone likes to earn rewards, but generally speaking, a customer with credit card debt has different priorities from the rewards chaser. People with debt are looking to minimize their interest costs. Those who always pay their bills in full each month, on the other hand, are much more focused on rewards programs, since the APR will be largely irrelevant to them. Rather than target both types of customers with the same offer, most banks prefer to create different cards and incentives for each group.

Reason No. 3: Higher rates help offset the rewards expense

It costs money for credit card companies to give us cash back and airline miles on our purchases. Some of that expense is offset by the processing fees (the fees merchants pay to process your card). In addition, any finance charges we pay on balances also help pay for the rewards. This is why the best reward cards almost always have higher interest rates (not to mention annual fees!) than low-interest, plain vanilla cards.

For example in my review here of the Chase Freedom card, I discuss how it gives up to 5 percent cash back and has a variable APR of 12.99 percent to 22.99 percent. On the other hand, the APRs on low-interest cards from Simmons First National Bank, a purveyor of plain vanilla cards, are astonishingly low at 7.25 percent or 9.25 percent.

Aim for rewards or low rates, not both!

There are some cards that offer both 0 percent APR and a rewards bonus, but you will see their offerings in both categories are mediocre at best. If you want to get the top balance transfer offers on the market, then you will want to go after a card that gives you that and nothing else. On the flipside, if it’s the rewards bonus you are after, you will see the most generous cards don’t give you 0 percent — and if they do, it’s only for a relatively short period of time.

Now if you still insist on having your cake and eating it, too, the best way to accomplish that will be to apply for two separate offers — one for low interest and another for rewards. Be forewarned, however, that every time you apply for a card, the issuer will check your credit, which will temporarily ding your credit score. My advice is to apply for the card you want most first, then wait a month or two before applying for another card.


Michael Dolen is the founder and managing editor of CreditCardForum.com, which is the leading online

forum solely dedicated to credit cards. His “no holds barred” credit card reviews and commentary are regularly featured in financial publications and websites such as The Wall Street Journal, The New York Times, Bloomberg and US News & World Report.

His knowledge and expertise come from real world experiences. After being left with monstrous medical expenses from an auto accident at age 18, he strategically used 0% credit card offers to finance his out-of-pocket costs not covered by insurance. These days, he’s debt free and focuses on finding new ways to maximize rewards and milk cardholder benefits. As a small business owner, he’s also well aware of the struggles that both entrepreneurs and established companies face when it comes to business credit in today’s economy.

When he’s not busy surfing the Web for credit card deals, you will likely find him surfing the waves along Southern California’s coast, where he lives.