Are Rewards Credit Cards Worth It?

Rewards playing cards are fashionable for a cause — you may get money or journey factors on purchases you’d make anyway. When used responsibly, a rewards bank card may help you get monetary savings on flights, motels, eating out, live performance tickets and extra.

However not everybody is aware of maximize their bank card rewards. What kind of rewards card would finest fit your wants? How do you earn a sign-up bonus? What are the perfect methods to redeem your rewards?

Normally, rewards playing cards are value it — so long as you’re not carrying a steadiness and the annual charge is lower than the worth of the rewards you earn annually. I spoke with Rick Conyers, Assistant Vice President of Credit score Card Merchandise at Navy Federal Credit score Union, about some issues for rewards playing cards.

Benefits of rewards playing cards

The worth of a rewards card depends upon whether or not you utilize the cardboard responsibly — and that features profiting from all of the rewards you earn. Listed below are a couple of components that make rewards playing cards value it:

• Rewards on on a regular basis purchases: Naturally, the most important advantage of utilizing a rewards card comes from the rewards you earn. The very best journey rewards playing cards earn factors or miles on each buy, whereas the perfect money again playing cards earn money again on on a regular basis spending.
• Welcome bonus: Rewards playing cards that provide a sign-up bonus, additionally referred to as a welcome bonus, allow you to earn rewards after turning into a brand new cardholder and spending a specific amount in a set timeframe.
• Journey redemption choices: Should you jet-set typically, a journey rewards card permits you to put factors or miles towards flights and motels. They will additionally include perks like elite standing, journey insurance coverage and assertion credit.
• Money again redemption choices: Individuals who like to spend on going out or just use their card to pay for on a regular basis bills would possibly profit from money again rewards. Flat-rate money again playing cards earn the identical quantity on each buy, whereas bonus class money again playing cards earn extra factors in sure buy classes. Whether or not you need a flat-rate card versus a bonus class card will rely in your spending habits.

Conyers says your way of life performs an enormous function in selecting a rewards card. “I encourage everybody to take a look at the place they usually spend and ensure what they’re selecting aligns with their way of life,” he says.

His household of 5 doesn’t journey typically, however they prefer to go on household outings. That’s why Conyers makes use of his money again card for his or her common spending. This summer time, he and his youngsters are utilizing money again to go to the films.

“We splurge and use money again to cowl issues we don’t do as often all year long,” he explains.

Disadvantages of rewards playing cards

Rewards playing cards, like several bank cards, additionally include potential dangers value desirous about earlier than you apply, comparable to:

• Overspending to earn rewards: It may be tempting to spend greater than you may afford to max out your rewards or earn a welcome bonus. In truth, 2 in 3 Individuals (67 p.c) are chasing bank card rewards whereas in debt.
• Untapped worth: Should you don’t really redeem your rewards, you’re leaving cash on the desk. And a few redemption choices are much less beneficial than others, so it could take effort to maximise a rewards card’s worth.
• Excessive rates of interest: Bank card rates of interest are at an all-time excessive, and rewards playing cards are likely to additionally carry excessive charges. Should you don’t repay your steadiness in full every month, the curiosity you accrue could outweigh the worth of your rewards. “Contemplate the price of holding debt on a rewards card,” Conyer advises.
• Excessive annual charge: Many rewards playing cards cost an annual charge. When contemplating a card with a excessive annual charge, ask your self if you need to use the rewards and advantages that include it. If not, “that annual charge will lose a few of its luster,” Conyers says.
• Excessive credit score rating necessities: Rewards playing cards might also require you to have good or wonderful credit score. Remember that card issuers pull a tough inquiry in your credit score while you apply for a brand new card, which dings your credit score rating. So, it’s good to know whether or not you’re prone to qualify earlier than making use of — particularly should you plan to use for different loans, like a mortgage or automotive mortgage, within the close to future.

“There are at all times a couple of indicators you need to search for so that you don’t have purchaser’s regret on the subject of a rewards card,” Conyers says. “I encourage somebody to consider the long-term plan they’ve for the cardboard they’re taking a look at.”

Must you get a rewards bank card?

With so many rewards applications on the market, it may be overwhelming to think about whether or not a rewards bank card is best for you and which kind it is best to apply for. Right here’s when a rewards card would possibly or won’t be value it:

When getting a rewards card is value it

Should you don’t have already got a superb rewards card in your pockets, you could be leaving cash on the desk — particularly should you journey often, purchase lots of groceries, pump gasoline typically or make retail purchases that may earn you factors.

For instance, making use of for the most effective bank cards for groceries might earn you money again on eligible grocery store purchases. Utilizing the most effective bank cards for eating out means you can earn money again on eating places and takeout. And should you’re planning a trip within the close to future, it is best to think about a journey rewards card.

When getting a rewards card isn’t value it

In case your credit score rating is lower than good or you have got a restricted credit score historical past, it may be troublesome to qualify for a rewards card. As an alternative, you’d doubtless be higher off specializing in responsibly utilizing a starter bank card to construct up your credit score.

And should you’re already in bank card debt, it’s not a good suggestion to tackle extra debt with a view to earn rewards. Prioritize paying down your present card balances first, as a result of the curiosity you’re accruing doubtless outweighs the worth of any rewards.

Rewards bank card options

Whereas many individuals need to earn rewards with their bank card, it’s value noting that there are different forms of playing cards out there. The next playing cards may be a greater match than a rewards bank card, relying in your creditworthiness and monetary state of affairs:

Bank cards for these with poor credit or no credit score

Folks with poor credit score or no credit score can apply for the most effective playing cards for poor credit. Whereas these playing cards don’t normally include many rewards or advantages, they might be simpler to qualify for. After constructing credit score with accountable use, you may improve to a card with extra perks.

Steadiness switch bank cards

When you have current bank card debt, you may be higher off with a steadiness switch card. The 0 p.c introductory APR interval can purchase you time to repay the steadiness and keep away from curiosity expenses.

The Citi® Diamond Most well-liked® Card* is likely one of the finest steadiness switch playing cards available on the market — and can prevent more cash than a money again card, when you’ve got bank card debt. This card doesn’t earn rewards, nevertheless it does supply a 0 p.c intro APR for 12 months on purchases and 21 months on steadiness transfers. After that, the variable APR shall be 18.24 p.c to twenty-eight.99 p.c, primarily based in your creditworthiness. Steadiness transfers should be accomplished inside 4 months of account opening to qualify for the promotional price.

Debit playing cards

Should you choose to steer clear of credit score, a debit card is the trendy model of money. Debit playing cards are linked to your checking account. They’re normally free to make use of and make it troublesome to overspend. It’s uncommon for a debit card to earn rewards, however there are a couple of choices on the market, such because the Uncover Cashback Debit. Should you apply and are permitted for a free Cashback Debit checking account, you can use your debit card to get 1 p.c money again on as much as $3,000 per thirty days.

The underside line

Although rewards bank cards have their execs and cons, making use of for a card with rewards will typically reap extra advantages than a card with out rewards — so long as you utilize it responsibly. However should you aren’t maximizing your rewards, you’re lacking out on cash towards journey bookings, retail purchases and extra.

Should you’re on the hunt for the correct rewards bank card, Bankrate’s CardMatch instrument may help you discover playing cards that suit your credit score historical past, spending habits and monetary targets.

*Details about the Citi® Diamond Most well-liked® Card has been collected independently by Bankrate. The cardboard particulars haven’t been permitted or reviewed by the issuer.