Are Credit Cards Worth It?
Consumers have long been told that credit card reward programs are a great deal. After all, you are using your card anyway, so why don't you get something back? Well, it turns out that for most consumers, they are not such a bonus.
Over 85 percent of U.S. households are enrolled in at least one rewards program, according to consumer reports. The most popular programs are those that give a certain percentage of your expenditure back as cash. The downside to these types of cards is a higher interest rate on average or an annual fee. If you don't pay off your balance each and every month, any benefit from the cash back can quickly be erased by paying interest on your balance. Even if you do pay off your balance each month, an annual fee could end up being more than your cash reward.
So, what about those consumers who are savvy enough to make these programs work for them? According to studies, consumers who use cards linked to a reward program tend to spend more than those who don't. Even more surprising, almost 42 percent of reward cardholders rarely or never use their rewards. Since many programs place expiration dates on their rewards, these consumers are missing out on the very benefits that compelled them to get the card in the first place.
Consumers can make the most of these programs, however, with some practical approaches to their credit card use strategy. You are more likely to benefit from these programs if you find a credit card that offers points for where you shop most often. Figure out how much you would have to spend to get the rewards you are interested in. Be sure to subtract any fees for using the points and your credit card's annual fee. If this amount is larger than what you normally spend, it is better to find a card that offers rewards more suited to your lifestyle.
If you are able to find a card with no annual fee that offers a cash back program, opt for that over any points program. In general, a rewards program is only a good deal if you pay your bills in full each month. If you carry a balance, you may wish to skip a rewards program altogether; instead find a card that has as low an interest rate as you can find.
Finally, if you do have a card with a reward program, be very aware of how this might tempt you to spend more than you've budgeted. Credit card companies offer these programs for a reason–not only do you remain loyal to that company, but you will also on average spend more on your purchases. Resist the temptation to spend above your budget just because you'll get the points. It is better to spend less and save the money to pay for that airline ticket or magazine subscription yourself.
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