Editorial Policy

Are Rewards Credit Cards Worth It?

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By Eva Norlyk Smith, Ph.D.
May 22, 2009

If you’re like most people, you probably carry one or several rewards credit cards in your wallet. After all, you have to buy groceries every week anyhow, so why not put the tab on a card that promises you frequent flyer miles for every dollar spent? Not surprisingly, this logic has enticed 85% of U.S. households to participate in at least one rewards credit card program. According to a Consumer Reports survey, an estimated 41% of us lug around 3-5 rewards credit cards in our wallet.

Rewards credit cards offer great incentives to spend, whether in the form of cash back, frequent flier miles and/or travel rewards, points that can be redeemed for specific products, or gas rebates. But are rewards credit cards really worth it? The answer is not a clear cut “yes” or “no.”

“If you’re disciplined enough to not carry a balance, rewards credit cards can be a real good deal,” says Scott Langdon, Vice President of Operations of Nationwide Card Services, a subsidiary of Bankrate, Inc. “I never pay cash anymore if I can avoid it, so the rewards really add up over the year. I essentially get paid to use my credit cards.”

While the benefits are apparent, there also are drawbacks. Rewards programs can be a temptation to spend more—and more, and more. It’s all too easy to justify an extra fifty dollar purchase because it will propel you closer to the points you need for that fancy new leather laptop case. If you wish to benefit from a rewards credit card, be careful to keep an eye on your spending habits and don’t get tempted by promises of rewards.

In addition to potentially encouraging overspending, rewards credit cards generally charge a higher APR than their “non-rewarding” cousins. Consequently, if you have a history of carrying a balance, a low APR card will prove more beneficial in the long run. The interest rates on a rewards credit card can quickly undermine the benefits if you don’t pay your balance off in full each month.

One of the main drawbacks of rewards credit cards may be that for many people, the rules are just too confusing.

“It’s too complicated to figure out what rewards cards are offering and how to make best use of it,” says Christine Albers, a Sales Manager at Books Are Fun, a Reader’s Digest subsidiary. “I’m just too busy to look into all the rules and conditions.”

Indeed. For some cards, rewards points expire after five years, for others, after only one or if the account remains inactive for a period of time. Some rewards credit cards cap the number of points you can earn in a year; others will cease adding points to your account should you send in a payment late. Some cards have a tiered rewards structure, others ceilings on rewards. Rewards payments can be slow and complicated to cash out. No wonder that many people never get around to redeeming the points on their rewards credit cards.

In short, to really benefit from rewards credit cards, you have to be organized and disciplined enough to never carry a balance. For most people, a simple cash back credit card may be the best choice. According to Consumer Reports, cash back credit cards are easier to cash in and actually tend to be more generous. Rewards credit cards can work in your favor, but the card companies designed them to also work in theirs. Do your research, be alert to your spending habits, and choose wisely.