Why a Rewards Credit Card May Be a Bad Idea…

March 26, 2013
by Kyle Taylor

Rewards cards can be awesome. They give you free stuff just for using your credit card! While this might be true of some rewards cards, not all credit cards will be as rewarding as you may think. In fact, you may end up paying more for some cards than you ever get back in rewards. So, how can you tell if it’s time to put away the rewards card and switch to something cheaper?

Do you carry a balance?

Rewards cards can attract high interest rates. Basically, a card provider needs to make money back on the rewards it gives out. This means rewards cards will usually charge high interest or high annual fees – or both. If you carry a balance on a high interest credit card, you could end up paying more out in interest than you get back in rewards. Pay off your bill each month or look for a rewards card with super-low interest.

Do you spend a lot on your card?

Several studies have shown that unless you are a big spender, you probably won’t be getting much back from your rewards card. You could spend more than $20,000 on your card in a year and still make less than $100 in rewards. So, unless you change the way you use the card, or happen to be a big spender, you may not be getting much back.

Do you need the rewards on the card?

Oddly enough, some people get a rewards credit card just for the sake of earning rewards. They don’t care that they don’t actually need another hairdryer or blender, or an alarm clock that moos, or a set of tea towels in matching colors – they just like getting rewarded. If you are set on having a rewards card, make sure the rewards program is one that you will actually benefit from.

Do you spend just to earn rewards?

Another no-no when it comes to rewards cards is spending just to earn. You know that you can earn a certain amount of points for buying a certain item in a certain store. But really, if you didn’t really need that item and didn’t really want it, was it worth buying it just to earn points? You probably spent more on the item than the value of the points you earned.

Do you need an introductory offer?

Credit card companies want you! And to entice you, they will give you incredible sign-up offers. When it comes to rewards cards, this will usually mean bonus rewards points. Again, this is something to be wary of. Read the small print, as you will often have to spend a certain amount of money, in a certain amount of time, at a certain store, just to get the bonus points. Great – if you were planning on making those purchases anyway, otherwise – a waste of money.

Do you get back more than you pay in?

This is the six million dollar question. In order to find out whether your rewards card is actually rewarding you, you need to work out if you are paying more out than you are getting back in rewards. If not, try using a credit card calculator to see if you can find a cheaper credit card that saves you money.

Good luck Penny Hoarders!

by Kyle Taylor
Kyle is the founder of ThePennyHoarder.com

Share Your Thoughts

Top Articles

What Makes a Good Accountant?

According to the U.S. Bureau of Labor Statistics’ “Occupational Outlook Handbook,” there are a few concrete traits and educational requirements that make up a good accountant. These include analytical skills, being detail oriented, possessing a great ability to compare, interpret, and analyze complex figures, and having keen organizational skills. Oh, and obtaining a bachelor’s degree […]

What Annuity Options Are Available Post-Retirement?

Retirement is something many of us will look forward to. Saying goodbye to the world of work, the daily grind and having to get up at 7am every weekday morning are just reward for decade after decade of turning up to our jobs on time, putting a good shift in and contributing to the economy […]

Are You Making This Budgeting Mistake?

If you’re like many Americans, you sit down every month and make a rough budget.  You estimate how much money will be coming in, and you write down what you will do with that money. Perhaps, like many Americans, when the end of the month comes, you find yourself looking at a negative number. What […]

Company Car or Car Allowance: Which one to choose?

One of the employment benefits most often talked about in Australia must be the company car. It’s a valued benefit, but with a variety of options due to tax law changes back in 2002, it’s hard to tell what is the right choice for you. Let’s walk through the two options, and explore some of […]

Are You Saving All Wrong?

With saving interest rates so low on most accounts, you may be depressed each month when you look at your bank statement.  It was only about 5 years ago that you could easily earn upwards of 5% in a money market fund.  That just isn’t the case now.  But if you’re stuck at 0.50% or […]

The 4 Best Lottery Winner Stories

Whether you go to the gas station or convenience store and pick up your lottery ticket or instead frequent a site like William Hill 49s, you likely play the lottery because you dream of winning it big.  Who doesn’t? It’s hard not to imagine what life would be like as a multimillionaire when you hear stories […]

How to Save Money By Bundling Your Services

There are many ways to be a Penny Hoarder:  find free money with bank and credit card offers, find ways to make extra money on the side, and find ways to save money.  The latter may not get discussed as much as the other two options, but it’s still important. Saving money without diminishing the […]

Setting Your College Student Up for Financial Success

Ah, the end of summer.  Time for the kids to go back to school, including the college students.  The first year of college can be quite a learning experience, not just academically, but socially and emotionally as well.  Unfortunately, for many college students, it’s also a financial learning experience.  I say unfortunately because many college […]