Rewards cards are worth it to specific consumers. Some borrowers state that credit cards are not worth the potential cost or rewards, while others argue that the benefits far outweigh the costs.
At CreditNinja, we believe that rewards credit cards can be worth it if you have the knowledge and tools at your disposal to use them strategically. According to a survey by Slickdeals, Americans save an average $757 per year by using credit card rewards.1 However, most people don’t know how to make the most of the perks rewards cards offer.
Are rewards credit cards worth it? Keep reading to learn how you can benefit from rewards cards!
What Is a Rewards Credit Card?
Rewards credit cards allow you to earn various kinds of rewards from purchases, such as:
| Type of Reward | Description | Ideal For | Key Considerations |
| Cash Back | Offers a percentage of your spending back as a reward. | Those who prefer simple, versatile rewards. | – Rewards can often be applied as statement credits or cash. – May have rotating categories with higher rewards. |
| Points | Earn points for each dollar spent, which can be redeemed for various rewards. | Shoppers who frequent specific retailers or services. | – Points can lose value over time. – Often have bonus categories for extra points. |
| Travel Miles | Earn miles for purchases, redeemable for travel-related expenses like flights, hotels, and car rentals. | Frequent travelers. | – Best value when redeemed for travel. – May come with travel-specific perks like lounge access. |
| Tiered Rewards | Different spending categories earn rewards at different rates. | Those with varied spending habits. | – Requires understanding of which categories earn more rewards. – May need to track spending to maximize benefits. |
| Rotating Categories | Rewards categories that change periodically (usually quarterly). | Adaptable spenders who can align spending with rotating categories. | – Requires keeping track of changing categories. – May have to activate the category to earn rewards. |
| Flat-Rate Rewards | Earn the same rate of rewards for all purchases. | Those with consistent spending patterns. | – Simplicity in earning rewards. – May not offer the highest rewards rate compared to category-specific cards. |
How Do Credit Card Rewards Work?
Whether you choose cash back, points-based, or travel miles, all credit card rewards essentially work the same: you spend money using the card to get rewards that will unlock all manner of perks from cash to discounts on other purchases. The finer details, like how much you receive in cash back or collect points, vary greatly depending on the credit card and the financial institution.
Typically, you will need to hoard a certain amount of points in order to redeem them for travel spending, cash back, or otherwise. But once you have saved enough points, it should be relatively simple to redeem the rewards you have through the credit card issuer’s website. Most credit card companies have a redemption portal where you can see how many credit card rewards you have earned and choose how you wish to use them.
Cash rewards cards often allow you to convert your rewards into statement credits. Rather than deposit your cash back into a checking account, a statement credit will put the money you earned towards your credit card bill.
Choosing a Rewards Card
Most reward credit cards require you to have a good or excellent FICO score. If you don’t have at least good credit, you will likely find it hard to qualify. Once you are sure you have good approval odds, you will want to pick a card that fits your lifestyle and allows you to save money on annual loan fees.
Pick a Card That Matches Your Lifestyle
Picking a card that matches your spending habits is vital to getting the most out of your credit card rewards. If you travel regularly, a travel credit card will be the best way to stretch your travel budget. If you do a lot of driving, then a card that gives you points for spending at gas stations could be perfect. Find a card that already fits with your spending and your budget.
Find a Card With a Low or No Annual Fee
Annual fees can end up costing you a considerable amount of money. Therefore, if you are an average spender, you will want to locate the credit cards with little to no annual fees. That way, you can earn credit card rewards that entirely cancel out the annual fee without making other purchases that are unnecessary.
Make Rewards Credit Cards Work for You
Two significant concerns about rewards credit cards cause some financial experts to discourage their use. The first concern is that you will pay more money in fees than you will earn in rewards, and the second is that you will spend more money than you would usually to get enough points to make the credit card worth it.
Fortunately, there are strategies you can use to make your credit card rewards work harder for you to get as many benefits out of your rewards card as possible without spending money that you don’t need to.
Here are a few ways that you can better take advantage of your rewards credit cards worth so you get significantly more bang for your buck:
You Were Already Planning a Large Purchase
Wait to apply for a rewards credit card until you have a substantial purchase to make. If you’ve been saving money to cover the costs of this big purchase, then you can use a brand new reward card to make the purchase and pay off the card balance immediately afterward. This allows you to get all the points you can without paying interest.
Only applying for rewards credit cards when you already have money set aside for a specific thing prevents you from making purchases you don’t need simply to earn enough points to make the card worth it.
Pay Off Your Balance in Full Every Month
The best way to get the most out of a rewards credit card is to pay off your credit card in full every single month. When interest is tacked onto your credit card statement at the end of the month when you have a remaining balance, you could end up in a situation where you pay more in credit card interest than you get in rewards. This could worsen if you were to consistently make late payments, as late fees could cancel out any rewards or cash back you earned.
Making sure to pay off all the purchases you make using the card at the end of the month could make the cash back or points you earn actually feel like free money.
Paying all your credit cards in full every month could also do wonders for your credit report. Consistently getting your account to zero balance will improve a bad credit report or any authorized user attached to your credit account. Remember that you can get your credit report for free once a year.
Take Advantage of an Introductory APR
Multiple cards with rewards programs offer sign-up bonuses that could allow you to avoid interest rates on your purchases after your account opening. If you can’t quite pay your balance every month right now, you could find a card with a 0% introductory APR for the first year or two.
Removing the need to pay interest rates for the first year could make it possible to get rewards on all your purchases without needing to cover any fees. That way, you are getting every little bit of benefit out of your purchases that you possibly can.
FAQs About Rewards Cards
To avoid credit card debt, always spend within your means and pay off your balance in full each month. This way, you can enjoy the benefits of your rewards credit card without the burden of high credit card interest.
Yes, they are quite different. Cash advance loans are essentially short-term loans from your credit card issuer, often with high interest rates. In contrast, cash back rewards are incentives you earn on eligible purchases, which can be redeemed as statement credits or deposited into your bank account.
Some points on rewards cards might expire if not used within a certain period. It’s best to check the terms from your credit card company to understand the validity and usage policy of your credit card rewards points.
To determine if rewards credit cards are worth it, consider your spending habits, the annual fees of the card, and how often you’ll use the rewards. If you spend enough to outweigh the annual fees and can use the rewards effectively, a rewards card can be a valuable financial tool.
Look for a card that aligns with your spending habits. If you travel often, a card offering travel miles might be ideal. If your spending is more general, a card offering cash back or flat-rate credit card points might be more beneficial. Also, consider the annual fees and the interest rates.
Yes, there are usually some restrictions. Common non-eligible purchases include balance transfers, cash advances, and sometimes certain types of business-related expenses. Always read the fine print to understand what counts as eligible purchases for rewards.
To calculate the value of your credit card points, look at the redemption options offered by your credit card issuer. Divide the cash value of the item or service you can redeem with your points by the number of points required. This gives you a per-point value, helping you understand your credit card points’ worth.
A Word From CreditNinja on Rewards Credit Cards
Plenty of financial products promise all manner of fanciful monetary rewards. However, it’s essential to remember that the offer of free stuff is often not as simple as it is made to appear for advertising purposes. But if you are smart and know how to manage a credit card wisely, you can make it well worth it.
At CreditNinja, we aim to provide helpful answers to your financial questions. That’s why our online blog covers all types of topics, such as what a pledge loan is, how to get loans for gig workers, and even how to save money on personal loans and bad credit loans.
References:
- Americans Save By Using Credit Card Rewards │ PR Newswire
- Are Credit Card Rewards Worth It or Not? │ Fool
- Four Ways You Can Tell If Rewards Are Worth It For You │ My Money Coach
