Some Facts About Popular Credit Card Rewards

Nov 14, 2008 Credit Advice

The “rewards” a cardholder receives from the credit card’s issuer are presented according to the number of purchases the cardholder makes with the card. Some of the most popular rewards are air miles and discounts off the cost of flights offered by certain airlines, however, the variety of rewards that are available is nearly endless.”Loyalty” rewards are being offered by some stores and retailers when a card issued in their name is used, and it is possible to earn discounts toward the purchase price of a new car.  

However desirable some of the rewards offered by some credit cards might be, the question that must be asked is whether or not these rewards are worth it.You can answer this question for yourself by making comparisons between the interest rates on purchases made with cards having rewards and cards that do not have rewards.The lowest rate of interest on these types of cards is usually about 15% APR even though there are several credit cards that offer some kind of  loyalty bonus or reward.This is about 7-8% more in interest than you would pay for a very basic, low-interest credit card and infinitely greater, of course, than you would be paying on the zero-percent rate of interest on the introductory offer with many other credit cards.Across the whole range of reward cards, the interest rate comparison becomes even more alarming, with some interest rates exceeding well over 30% APR.

If your credit card is one of those that has these higher rates of interest and you are using it to earn enough points to get the types of rewards you want, it may be a better idea to switch to a lower interest credit card and save money instead of reward points.If you are the kind of credit card user who always tries to pay off the whole balance on the card before the payment is actually due, and who therefore never pays any interest, the rewards for using your card are genuinely free.You may want to consider the alternate choice of the cash-back credit card if you are not sure you can maintain the discipline of paying off the whole balance of your credit card each month.Similar in principle concept to the reward credit card, a cash-back card pays back, in cash, a preset percentage of whatever has been spent on the card each month.      

The best cash back rate is currently around 5% on what is spent, and with 19% APR in interest it becomes very obvious that you are paying a lot to be able to use the card.The interest charges can be avoided and the 5% cash back can be put into your own pocket if you are one of the consumers who is in the habit of paying all of your outstanding balances each month.    

The gas credit cards that rebates in your gas or other cards that offer rewards or cash back can be worth using if you stay with a strict rule of repaying any outstanding balances before they are due and therefore, avoid paying interest charges.It could be of benefit to your finances to use the credit cards that offer cash back or rewards and you consistently repay the balances on them each time to avoid the interest charge.

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