Key takeaways
- Rewards credit cards can help you earn points, miles or cash back on your everyday purchases.
- There’s a wide variety of rewards cards out there, so you’ll want to choose a card that fits your spending habits.
- If you’re still building credit or paying off credit card debt, you might consider alternative cards that don’t offer rewards but are easier to qualify for or allow balance transfers.
Rewards cards are a popular choice for earning cash or travel points on everyday purchases. When used responsibly, these cards can provide savings on various expenses such as flights, hotels, dining out, and entertainment.
However, maximizing credit card rewards can be challenging for some individuals. It is essential to understand the type of rewards card that suits your needs, how to earn sign-up bonuses, and the best ways to redeem rewards.
In most scenarios, rewards cards are beneficial as long as you pay off your balance monthly and the annual fee is less than the value of the rewards earned annually. Rick Conyers, Assistant Vice President of Credit Card Products at Navy Federal Credit Union, shares insights on considerations for rewards cards.
Advantages of rewards cards
The value of a rewards card lies in utilizing the rewards earned responsibly. Here are some factors that make rewards cards worthwhile:
- Rewards on everyday purchases: Rewards cards offer points or cash back on regular spending.
- Welcome bonus: New cardholders can earn rewards by meeting spending requirements.
- Travel redemption options: Travel rewards cards provide benefits like flight and hotel redemptions.
- Cash back redemption options: Cash back cards offer rewards for various spending categories.
Consider your lifestyle when choosing a rewards card, advises Conyers. Select a card that aligns with your spending habits and preferences.
Conyers uses a cash back card for family outings since they don’t travel frequently. They utilize cash back rewards for special activities like going to the movies.
Bankrate’s take:
There are numerous rewards programs available. Consider your spending habits and willingness to strategize for rewards to choose the right card for you.
Disadvantages of rewards cards
Rewards cards, like any credit cards, come with potential risks that should be considered before applying:
- Overspending to earn rewards: It can be tempting to spend beyond your means to maximize rewards or earn bonuses.
- Untapped value: Failing to redeem rewards means missing out on potential savings.
- High interest rates: Rewards cards often have high interest rates, which can outweigh the value of rewards if you carry a balance.
- High annual fee: Some rewards cards charge annual fees, so it’s crucial to assess if the benefits justify the cost.
- High credit score requirements: Rewards cards may require good credit, and applying can impact your credit score.
Conyers advises considering long-term plans when choosing a rewards card to avoid buyer’s remorse.
Bankrate’s take:
Before applying for new rewards cards, check the interest rates, annual fees, and credit score requirements to make an informed decision.
Should you get a rewards credit card?
With numerous rewards programs available, determining if a rewards credit card is suitable and selecting the right type can be overwhelming. Here’s when a rewards card may or may not be beneficial:
When getting a rewards card is worth it
If you don’t already have a rewards card and engage in activities that could earn you points or cash back, a rewards card could be advantageous.
For instance, applying for a top credit card for groceries can provide cash back on grocery purchases, while a dining rewards card can offer cash back on dining expenses.
When getting a rewards card isn’t worth it
If you have poor credit or are in debt, it may be challenging to qualify for a rewards card. In such cases, focusing on improving credit or paying off existing debt is advisable.
Rewards credit card alternatives
While rewards credit cards are popular, other card options may be more suitable based on creditworthiness and financial circumstances:
Credit cards for those with bad credit or no credit
Individuals with poor or no credit can consider cards designed for building credit. These cards may have fewer rewards but are easier to obtain. Once credit improves, upgrading to a rewards card is possible.
Balance transfer credit cards
If carrying credit card debt, a balance transfer card with a 0% introductory APR period can help save on interest charges while paying off the balance.
The Citi® Diamond Preferred® Card* is a top choice for balance transfers, offering a 0% intro APR for purchases and balance transfers. After the intro period, a variable APR applies.
Debit cards
For those averse to credit, debit cards linked to checking accounts offer a cash-like experience. Though they usually don’t earn rewards, options like the Discover Cashback Debit provide cash back on qualifying purchases.
The bottom line
Rewards credit cards have pros and cons, but applying for a card with rewards can be beneficial when used responsibly. Maximizing rewards can lead to savings on various expenses. Utilize tools like Bankrate’s CardMatch to find cards that align with your financial goals.
*Information about the Citi® Diamond Preferred® Card has been collected independently by Bankrate. The card details have not been approved or reviewed by the issuer.