Credit card rewards aren’t worth it if you don’t

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Credit card rewards can be worth quite a bit. You might be able to get cash back, free trips, or other perks that are worth hundreds or even thousands of dollars. And you can get all of these benefits for the expenses you probably would have anyway.

But, while earning card rewards is a good financial bonus, it’s not worth it if you don’t do one important thing with your credit card.

Here’s what you need to do to make credit card rewards worth it

If you use credit cards for the purpose of earning valuable rewards, your decision only makes sense financially if you also pay off your credit card balance in full each month to avoid interest charges.

There’s a simple reason why paying off your card is essential to making using a card for rewards worthwhile. If you don’t pay off the balance, the interest you pay is going to cost you far more money than you could ever earn by earning rewards. The math is clear on that.

You see, most credit cards charge up to 17% interest on the debt if you don’t pay off your balance in full. And cards have variable rates, so with the Federal Reserve (US central bank) raising interest rates this year in an effort to fight inflation, credit card debt is getting even more expensive for most people. .

Rewards, on the other hand, will never be worth 17% or more of your purchase amount. Even on the best rewards cards, you’ll typically get up to 5% back on bonus spend categories, and a large portion of your spend will earn you rewards worth around 1% to 2% of the money you you charge.

If you earn 2% on your expenses but pay 17% interest, you will find yourself in the red. You don’t want that to happen, so unless you’re sure you can pay off your cards in full, you should generally try to avoid using them, even if it means missing out on rewards.

How to make sure you pay your balance in full

The good news is that for most people, it’s possible to make sure you pay off your balance so you can use cards and enjoy the rewards they offer without owing a fortune in interest.

To do this, you’ll want to start by setting a budget and committing to it. If you know how much you can afford to charge to your cards for different types of purchases, you won’t end up with debt you can’t pay.

You can also set up your cards for automatic payment so that the total balance due is taken directly from your bank account. As long as you’ve made sure you have enough money in the bank so you don’t overdraw, this will ensure that you aren’t stuck paying interest charges on everything you charge. You’ll get the valuable rewards card offer, without the added costs associated with finance charges, and you’ll be better off in the end.

Check out The Ascent’s best credit cards for 2022

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