Rewards Credit Cards: Are They Still Worth It?
There were no words minced when the credit card companies let the world know that it’ll be tough for them to be so generous in the post-CARD Act era. And now, they’ve followed through. Our rewards cards aren’t quite so rewarding anymore, with cashback rates slipping from all time highs of 3% to an average of 1.25% and the annual fee making a comeback So, with the standards slipping, is it still worth it to try to rack up rewards points for free loot?
Well, it depends.
Determining whether a rewards credit card is a good deal mostly has to do with your own situation and spending habits. With that in mind, ask yourself these questions in order to decide if a rewards credit card is worth it.
Do the benefits outweigh the costs?
This is an easy one. Take a look through the rewards you’re likely to earn and compare it to the annual fee. Are you paying a $199 annual fee for the chance to earn a free night in a hotel worth $100? Then skip it.
Of course, when you’re trying to decide between two cards, the equation gets a little bit trickier. For example, let’s say card A has rewards but a higher interest rate plus an annual fee while card B has no rewards, a lower interest rate and no annual fee. Ask yourself: If I carry a balance on the higher interest card, will the rewards I receive exceed the amount I’d save if I went with a lower interest credit card?
To help you get a big picture perspective, do a true apples-to-apples comparison. Tally up those fees and run through a scenario where you carried a balance throughout the year by punching in some numbers into a credit card calculator.
Will I have to change my spending habits?
Ever see an offer and think, “Wow! I could earn 20,000 points instantly? But wait, I never shop at SuperWarehouseGoodsstore.com…” That’s a sign of a bad deal. You shouldn’t have to change where or how much you spend based on the possibility of earning rewards. When it comes to deciding where to spend your money, you should base your decision on your needs, your budget and where you see the most value without considering rewards. Chasing rewards points to obscure merchants and upsells is a highly inorganic way to manage your personal finances and will likely lead to a closet full of junk you don’t actually want or need and some consolation prize that is worth less than the money you blew on random purchases.
Let the rewards come to you. Choose a rewards card that matches your lifestyle and spending habits. Drive cross country every weekend for a rendezvous with your long distance heart throb? Get a card that rewards gas purchases. Saving up for a honeymoon? Get a Sandals Rewards Card that goes towards an all inclusive vacation. Love to travel but hate United Airlines? Skip the Visa Mileage Plus and grab the Visa Rapid Rewards for Southwest.
Can I get these savings elsewhere?
Consider this: a $25 gift card for Damon’s Grill from a certain rewards card program costs 2,500 points. Now, if you’re earning 1 point for every dollar you spend, you’re essentially spending $2,500 to save $25 on some baby back ribs. That’s about the same as cashing in a 1% discount coupon.
There are more ways to save money than through credit card rewards. Coupons, promotions, membership cards and good ol’ fashioned frugality are a few of them. And if you think about it, these methods aren’t much different than rewards programs. For example, a credit card rewards program has you shelling out $200 a year for the opportunity to rack up points, while buying a coupon book like the Entertainment Book has you forking over $20 for hundreds of coupons for restaurants, shopping, travel, etc.
How many points will I likely earn?
This is another easy bit of math. Take a look at your credit card statements from the previous year and find out how much you spent on average. Now, plug that number into the rate at which you’d earn rewards. You might be surprised at how little you actually spend and thus how little rewards you actually get – especially if you’re only getting 1 point for every dollar you spend. Either see what else is out there (check out billshrink.com for credit card comparisons) or just get a normal, low interest rate, low fee card.
All in all, it’s clear that getting rewarded by rewards cards isn’t as easy as it used to be. For some, it’s still a lucrative venture (i.e. big spenders who qualify for the luxury credit cards that banks are now pushing). But for most of us, there are better avenues for saving money than rewards cards. Take time to crunch the numbers and think realistically about your spending before you go chasing after elusive free stuff.
Image by hermanturnip.
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- How much is your loyalty worth?
- Are Credit Card Rewards Really All That?
- Don’t fall into the ‘Rewards Trap’
- Consumer Reports’ Credit Cards Worth Holding
- Black Friday and Cyber Monday: Get More Rewards!
It depends on how much you spend and where you spend it. You can find cards to maximize your return — but that also increases your hassle if you have a card for every situation (groceries, gas, etc.).
We recently started using a Rewards Checking account that pays 3.61% interest — in 3 or 4 months we’ll earn in interest a majority of what we would have earned in cash back this year. We still use our CC after we reach the required number of transactions for the checking account, but that’s been a switch for us.