Photographs by GettyImages; Illustration by Hunter Newton/Bankrate
Consider incomes bank card rewards like working towards a vacation spot. With every step you’re taking — and bank card buy you make — you get a bit nearer to redeeming that flight or tucking that present card into your pockets. Now think about that you just’re working on a treadmill, however the treadmill is transferring backward. You’re working exhausting to succeed in that aim, however you simply can’t get forward quick sufficient.
Chasing bank card rewards whereas accruing debt is like working on a backward-moving treadmill. Usually, excessive rates of interest will outweigh the worth of any rewards you earn.
In keeping with a brand new Bankrate survey, 44 p.c of credit score cardholders carry debt from month to month. But 67 p.c of People with bank card debt nonetheless attempt to maximize bank card rewards.
Typically, bank card debt is unavoidable. This doesn’t imply you shouldn’t earn rewards when you can — so long as there’s a debt payoff plan in place. However spending cash you don’t have simply to earn rewards isn’t an efficient technique.
Key insights on bank card debt holders incomes rewards
Key Insights
- Almost one in three People are carrying bank card debt from month to month. That’s 34 p.c of U.S. adults who usually carry a steadiness as a substitute of paying in full.
- Most People who carry bank card debt nonetheless attempt to earn rewards. 67 p.c of bank card debt holders make “each effort” or “some effort” to maximise bank card rewards.
- Larger-income cardholders usually tend to attempt to maximize rewards, however different earnings ranges aren’t far behind. For example, 77 p.c of over $100,000 earners attempt to earn rewards, in comparison with 68 p.c of beneath $50,000 earners.
2 in 3 People with bank card debt nonetheless maximize rewards
In January 2024, the share of individuals carrying bank card debt was down barely from 49 p.c in November 2023 and 47 p.c in July 2023. Even so, 44 p.c of credit score cardholders are nonetheless carrying debt from month to month, so it’s value how bank cards are getting used.
Simply over two in three of these People with bank card debt say they make an effort to maximise bank card rewards, with 27 p.c making “each effort,” and 40 p.c making “some effort.”
Bank card rewards usually come within the type of miles, factors or money again. You usually earn as you spend, which implies you could possibly put rewards towards your subsequent journey or a dinner out whereas making purchases you’d make anyway. However with bank card rates of interest at an all-time excessive, debt can rack up shortly on an unpaid steadiness. And it’ll most likely price way more in the long term than that flight or meal does.
Chasing rewards when you’re in debt is an enormous mistake. The common bank card price is a record-high 20.75 p.c. The standard rewards payout is within the 1 to five p.c vary. It doesn’t make sense to pay 20 p.c or extra in curiosity simply to earn 1, 2 and even 5 p.c in money again or airline miles. When you’ve got bank card debt — and no disgrace, lots of people do — it’s so essential to prioritize your rate of interest. For instance, profiting from a 0 p.c steadiness switch provide might prevent some huge cash.
— Ted Rossman | Bankrate Senior Trade Analyst
It’s value noting that cardholders with no debt additionally chase rewards. Amongst cardholders who usually pay in full, 76 p.c make an effort to maximise bank card rewards. So long as you’re avoiding curiosity and never overspending, bank card rewards generally is a nice profit.
Chasing bank card rewards isn’t restricted by earnings
Whereas higher-income cardholders are the more than likely to make an effort to maximise bank card rewards, different earnings brackets aren’t far behind. Seventy-seven p.c of these with annual family incomes of $100,000+ make an effort to maximise rewards, in comparison with 75 p.c incomes $50,000 to $79,999, 70 p.c incomes $80,000 to $99,999 and 68 p.c incomes beneath $50,000.
Whereas spending past your means to earn rewards isn’t a wise cash transfer, it’s value contemplating whether or not lower-income cardholders profit from rewards greater than their higher-income friends. Bank card debt might not all the time be a alternative — it may be the results of a decent monetary scenario. And if a cardholder is utilizing a bank card to make ends meet, then incomes rewards on high of their essential spending doesn’t damage.
Younger adults and Northeasterners usually tend to maximize rewards
General, younger adults are a bit extra prone to chase bank card rewards. By technology, 77 p.c of Gen Z cardholders, 74 p.c of millennials, 69 p.c of Gen Xers and 69 p.c of boomers make each or some effort to maximise rewards.
The Northeast additionally has a bent towards rewards. Seventy-seven p.c of Northeastern credit score cardholders make an effort to maximise rewards, in contrast with 71 p.c of Southerners and Westerners and 69 p.c of Midwesterners.
