Do Credit Card Reward Programs Make It Worth Using One?

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Written By Michel Gerrald

Knowledge, Success, & Happiness.
My vision is to shift the mindset of success.

Do you want to earn free air miles? There are many credit card reward programs for this. Many credit card companies provide rewards for using their cards, such as travel miles, points, and cashback. The idea of spending money and receiving money back is appealing, but is it truly worthwhile?

The Perks of Rewards Cards

Rewards cards can be a valuable tool for accumulating cashback or points. Many cards include one or more of the following features:

  • All purchases earn 1%-2% cashback.
  • Bonus cash back on specific purchases.
  • You are eligible for a welcome bonus that awards a substantial number of points if you make a certain amount of purchases within the first few months.
  • Travel protection insurance.
  • Anti-fraud measures.
  • Purchase security.
  • Different cards offer different rewards, and the best rewards credit card programme are only available to those who have excellent credit.

Drawbacks to Consider

On paper, the Credit Card Reward Programs sounds fantastic. You receive free money. You accumulate points. Spending money earns you points.

However, this is not the case. Credit card companies are not in the business of handing out money. They wouldn’t be in business for long if they were.

They use rewards program to get people to sign up for their cards. You can make these benefits worthwhile, but it will require careful planning and a lot of effort.

Fees vs. Rewards

Assume you obtain a credit card that offers 2% cashback on all purchases. You immediately charge your groceries, gas, and other purchases to your card. You’ve just received 2% cashback on all of your purchases. Doesn’t it feel good?

However, if you are unable to pay off your balance in full each month, you are likely spending more in fees than you are earning in rewards. The annual percentage rate on most rewards cards ranges from 16.89% to 24.25%, which is higher than the average credit card.

Because of the slightly higher interest rate, you’re paying a little more in fees each month. Because those additional fees cancel out your rewards, if you carry a balance over, you’re probably paying more in interest than you’re receiving in rewards.

There are other costs besides interest that must be taken into account. There are also annual fees associated with many reward cards, which can be as high as $100 or even higher.

Maximizing Points is Exhausting

Even if you pay off your debt completely every month, it might be a lot of work to get the most out of your rewards. You may only earn extra points for particular types of spending, or the number of bonus points you may earn in each category may be capped at a set level.

In order to make the most of your points and prizes, you will need to keep track of a number of different reward cards and the many categories that award additional points for each card.

It is simply not worth the time investment for the vast majority of people. It is possible to achieve your goals if you approach them with enough dedication and focus. However, you will need to keep track of the statements and balances for various credit cards.

Certain Rewards Expire

Even if you are successful in paying down your debt each month and figuring out how to get the most out of your points, you will still need a method for redeeming the benefits you have earned.

In some loyalty programs, points are lost if an account is inactive for an extended period of time or after a predetermined length of time has passed.

Is It Worthwhile?

It may be worthwhile to carry a balance on a credit card that offers a rewards programme, but only in the following conditions:

  • Completely pay down your outstanding balance.
  • Have a plan in place for handling the rewards you receive.
  • Be sure to cash in on the incentives you’ve earned.
  • Make reasonable purchases.

Consider the benefits and drawbacks of each reward card to determine whether or not it is worthwhile for you and the way you manage your money.

On the contrary hand, if you are having a hard time improving your credit score, we have some recommendations for you. Feel free to explore.

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