As I mentioned earlier this year, common credit card mistakes can easily erase the benefits offered by any credit card, including rewards cards. So are reward credit cards worth it? The short answer is that they can be, as long as you use the card wisely and choose the card that’s right for your spending habits.
The question “Are rewards cards worth it?” is bound to come up more frequently as the holidays approach and credit card issuers look to capture new customers. If you think you’re going to be tempted by these offers, here are a few things that you need to know about rewards cards, as well as a few of the best rewards cards available today.
The Rules of Making a Rewards Card Work for You
Since rewards cards use different systems – airline miles, points, cash back – and accrue rewards at different rates, it can be very difficult to directly compare cards and determine “Are rewards credit cards worth it?” In any event, issuers know that borrowers use rewards cards more frequently than other types of cards, which earns the issuer money at the point of sale through exchange fees and at the back end of a sale through interest.
Remember that having too many credit cards, and worse, using these credit cards to buy unnecessary items, are two of the worst financial mistakes you can make – to see the other three, read our article on avoiding financial mistakes here. If you think you can make a rewards card work for you, however, here are three rules to follow with rewards cards.
- Pick a card with no annual fee. These types of cards are becoming harder to find, but it is still possible to find a rewards card with no annual fee. Even if you use this type of card frequently, annual fees can quickly erode any rewards you accumulate.
- Always pay your balance in full every month. To make up for the money credit card issuers spend on granting rewards, most rewards cards have variable APRs which trend higher than fixed rate APRs. If you don’t pay your balance in full each month, the money you’re spending on interest might be more than the rewards are worth.
- Use a rewards card with rewards you’ll use. Racking up airline miles sounds like a great plan, but airline rewards cards tend to severely limit the times and airlines that you can fly. Plus, once you get where you’re going, you may still be on the hook for paying for everything else, like the hotel and meals. If you won’t be able to afford that by the time the miles expire, this isn’t the type of card for you. Use a card with cash back or retailer rewards you’ll actually use instead.
The Best Rewards Cards Available Today
Rewards cards are easy to find, but rewards cards that answer “Yes!” to the question “Are rewards cards worth it?” are a little more difficult to locate. These four rewards cards, two of which are issued by US Bank, are among the best available to those with average to good credit shopping for a card in the current credit market.
- Discover More Card. The Discover More Card offers 5 to 20% Cashback Bonuses at select retailers and during different periods of the year. There is no annual fee, and the card has a 0% introductory APR for the first 14 months, with a variable APR between 10.99 and 20.99% thereafter. The card is not available to existing Discover card holders.
- US Bank Cash+ Visa Signature. This card offers 2 to 5% cash back on purchases on any two categories you choose, like groceries, home improvement, or airline tickets, and 1% cash back on all other purchases. There is no annual fee, and the APR is variable based on the Prime Rate, but limited to between 13.99 and 23.99%.
- US Bank 1-2-3 Rewards. The US Bank 1-2-3 Rewards groups of cards are point cards where purchases at certain families of stores, such as Kroger’s, Smith’s, or Dillon’s, earn the cardholder 2 to 3 points according to every dollar spent. All other purchases earn 1 point per dollar. There is no annual fee. The card offers a 0% APR for the first 9 billing cycles and a variable APR between 13.99 and 23.99% thereafter.
- American Express Gold Card. Although annual fees are typically to be avoided, the speed at which points accrue with the American Express Gold Card makes this a worthwhile card if you pay your balance in full every month. For an annual fee of $125, cardholders earn 10 points per dollar spent at select merchants, and up to 10x bonus points on offers through its Earn Hub. All other purchases earn 1 point per dollar. Points never expire, which is a rarity with rewards cards.
So are reward credit cards worth it to you? Tell me about your experiences with rewards cards in the comments section below.