Credit Card Rewards Without Regret
Compare benefits and downsides to find the best credit card for you
Credit cards can be more than a payment method. They can offer cash back or points redeemable for purchases. Some are tied to airline and hotel programs. But when it comes to reward cards, the math must work in your favor.
Interest charges, annual fees or extra spending can eclipse the card’s value, cautions Dave Grossman, founder of Your Best Credit Cards, an online platform that helps consumers compare cards based on how they spend. He is also the author of MilesTalk: Live Your Wildest Travel Dreams Using Miles and Points.
He recommends answering the following before adding to your credit card collection.
Do you carry a balance?
If yes, pay it down. A reward card’s benefits won’t equal the amount of interest you’re paying, Grossman says.
Is there an annual fee?
If so, points, the cash-back percentage and other membership perks should make the fee worthwhile. Of course, a no-annual-fee card has great appeal.
Are points better than cash back?
It depends. “You may only get less than a penny a point,” Grossman says. “All points aren’t equal.” For example, you may need more points for one hotel room versus another.
Cash-back cards are “America’s favorite credit card feature,” says Ted Rossman, principal analyst with Bankrate, a consumer personal finance website bankrate and publishing brand that helps people compare financial products and make money decisions. “They’re so simple to use and universal. Who couldn’t use more cash, right?”
Does the card suit your spending habits?
Many cards are linked to a retailer or service, such as Instacart, Amazon or Target. A branded card is beneficial only if you consistently patronize the business.
Can you calculate the benefits?
If you won’t take the time to learn how miles and points work, Grossman recommends a cash-back card. A cash-back card is straightforward, and some issuers deliver 2% back on everything you buy with no annual fee, Rossman says. “Many give 1% back on most purchases and elevated rewards—anywhere from 2% to 6%—on certain types of spending, such as travel, dining, gas or groceries.”
Do you travel?
Grossman favors reward cards with transferable points to multiple partner hotel and airline programs. (Such cards may have an annual fee.) He ensures the partners include brands related to his dream destinations. Rossman notes that some cash-back cards have travel-related perks.
Do you have a plan?
Points don’t disappear but can change in value. Redeem regularly and avoid hoarding. As for travel, know how many points you need to book the trip and then do it. The bottom line: Rewards will add value but only after you control interest, fees and spending habits.