Are Rewards Credit Cards Really Worth It?

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The offers certainly are tempting. Five percent cash back on purchases. Fifty thousand frequent flyer miles. Free hotel stays. If you listen to the ads, you can start to feel like an idiot for not having a rewards credit card.

Many consumers seem to agree that rewards cards a great deal. Eighty-three percent of credit card users have at least one card that offers rewards, a 2015 survey by the American Bankers Association (ABA) found. Nearly half of people surveyed by said benefits and rewards were the primary reason they chose their current card, more than double the number who said a low interest rate reeled them in.

Savvy consumers who always pay their balance in full and read (and understand) the fine print can see big bonuses from credit card rewards, including hundreds of dollars in cash-back bonuses, gift cards, and free flights and other airline perks.

“You’re earning money that you’re otherwise likely to spend,” Vitaly Pecharsky, head of IT operations at Slickdeals, a website that helps consumers share and rate deals and coupons, told The Cheat Sheet. “There are several different reward cards, you can find one for every particular situation in your life. I make $3,000-$4,000 per year just on cash back alone with purchases that I’d be making anyway.”

Pecharsky can count on four-figure rewards because he’s serious about playing the credit card game. He has 35 cards in total, 12 to 15 of which he uses regularly. By using different cards for different purchases, he’s able to get up to 5% cash back on necessities like groceries and gas.

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For people who don’t want to keep track of multiple cards, Pecharsky suggests getting one card that most closely mirrors your spending patterns. “If you travel often, look for a travel rewards card. If you spend money on groceries, then look for rewards on groceries. Spending money on Amazon? Get an Amazon card,” he said.

Whether you have one card or many, be aware that perks can vanish if you rack up debt or end up with rewards that aren’t quite as generous as you thought they would be. Despite their popularity, the evidence suggests that a significant number of consumers aren’t totally clear on all the details of their rewards program. Just 63% of card users surveyed by J.D. Power in 2014 said they completely understood how to earn rewards, 43% don’t know if there’s a maximum limit on their rewards, and 30% aren’t sure if or when rewards they’ve already earned expire.

The biggest risk with rewards cards is the same as with any other credit card: spending more than you can afford. A 2010 study by economists at the Federal Reserve Bank of Chicago found that people spent more and racked up more debt when using a card that offered 1% cash back rewards, though people may have simply been shifting spending from one card to another.

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Those who do end up with rewards card debt may pay more for it. The average APR for a cash back credit card during the week of May 18, 2015, was 15.26%, according to That’s more than 2% higher than the average interest charged on a fixed-rate card. Gas station cards have an average APR of 24%, a 2015 survey by found.

“If the rates are high, the cost to carry a balance will often erase any savings the rewards program may offer,” Amanda Walker, senior project editor at Consumer Reports, told CNNMoney.

Another catch? Rewards cards often come with annual fees. People need to do the math to determine whether the cost of the fee exceeds the value of the rewards they’ll get. Frequent flyers may not bat an eye at an airline card that costs $99 a year but lets them avoid checked bag fees. If checking bags normally costs $25, the cardholder only needs to make two round trips to break even. But to come out ahead with a 1% cash back card that has a $99 annual fee, you’ll need to charge more than $10,000 every year.

Then there’s the fine print. To get sign-up bonuses, you’ll typically need to spend a certain amount within a few months of opening the card. Points and miles may eventually expire, and high cash-back offers may only apply to certain spending categories. Card issuers can and do change the terms of their offerings, including devaluing rewards points. Southwest Airlines recently announced that miles earned through its rewards programs (including those earned on credit card purchases) would be worth less on more popular routes.

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Consumer advocates say that card issuers should be doing more to make sure that people understand how rewards programs work. “There needs to be a simplification of how you earn the rewards and just better communication, so customers understand how to earn and redeem them,” Jim Miller, senior director of banking services at J.D. Power, told CNBC.

Currently, the Consumer Financial Protection Bureau is looking into whether rewards programs are clearly disclosing how rewards are earned and can be used and whether consumers really understand the terms of rewards card deals.

Like them or not, credit card rewards programs aren’t going anywhere soon. Card companies are stepping up their marketing of these cards, especially to the most desirable consumers, according to a report from Mercator Advisory Group.

“The competition for high-spending, low-risk cardholders continues to escalate,” said Ken Paterson of Mercator Advisory Group, which has studied the current market for consume credit card rewards, in a statement. “It is no stretch to say that rewards are the dominant marketing strategy for major credit card issuers.”
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