Should You Even Bother With Non-Reward Cards?

October 9, 2010

Today’s post is a guest article from Go Banking Rates that takes a look at how rewards cards can be hazardous to your financial health if the incentives they offer actually cause you to spend more money, wiping out the benefits of the rewards.

Credit card companies employ plenty of tactics to hook customers and keep them racking up balances. Some offer 0% APR introductory periods while others waive the annual fee. Then there are the rewards credit cards –from airline miles to points to cash back–there’s a suitable rewards system for just about every cardholder that makes the act of charging just a little bit sweeter.

However, if that’s the case, why would anyone bother with a credit card that doesn’t offer some type of reward for using it? It doesn’t seem worth it, right?

How Rewards Cards Cost You More In the Long Run
The answer may lie in how credit card companies can afford to give  millions of customers all that free stuff in the first place. You may swear by your rewards card, but it might really be costing you in ways you hadn’t considered.

Those Savings Are Just an Illusion

Let’s say you have a gas card with one particular station, Gas Station A. You just  love it because you earn 1 percent back on everything you spend at Gas Station A,  which great considering how expensive fuel is. That’s why it’s worth  filling up here, at $3.00 a gallon, when another station down the street  is only slightly less at $2.97. They’re not going to mail you a check at the end of the month,  are they?

Well, you go to your usual gas station and fill up a 15 gallon tank for $45. You charge it to your card, knowing you’ll get back  45 cents. It’s not a whole lot, but a month’s worth of charges really  add up to sizable savings.

However, what if you had gone to Gas Station B and paid with a card that doesn’t offer any sort of reward, or  better yet, just paid cash? Filling your tank for $2.97 would result in a total cost of $44.55. You would have only saved…45 cents. Also, you don’t have to pay an annual fee to shop at this station. Guess you didn’t really need to charge that purchase after all.

You Spend More Than Necessary

All right, maybe you use a card that offers some really significant savings. Maybe you earn 5 percent cash back on all of your purchases, not that measly one percent on gas alone.

Unfortunately, you’re only earning 5 percent back on money you probably 100 percent did not need to spend in the first place.

Studies show people may be psychologically inclined to spend more money when buying on credit than if they were to pay cash. Swiping a plastic card is much less “painful” than handing over a wad of cash–add the promise of points or cash back and it’s all the more easy to justify adding another line to your monthly statement.

Card Costs Wipe Out Savings

Rewards credit cards tend to also charge higher interest rates. A Consumer Reports study found that some of the most generous rewards programs charge interest anywhere between 9.74% and 19.99% APR.

So what does this mean if you have to carry a balance? Those rewards are negated by interest, and then you have to pay extra for purchases you probably wouldn’t have even charged if you weren’t going to earn points.

Then you have to consider whether you’re paying an annual fee. In that case, even if you never carry a balance, you’re still not realizing any real savings until they surpass the annual cost of just owning the card.

When Rewards Cards Make Sense
This doesn’t necessarily mean you should never use rewards credit cards. A rewards card is sometimes a helpful financial tool that can save you a little money, but only when used strategically. If you have trouble paying your bill in full every month and tend to carry a balance, or you just don’t use your rewards very often, a rewards card is not worth it.

If, however, you are diligent about paying your bill, you actually use the rewards to the degree that they truly save you money and your “savings” is greater than if you had just paid cash, then a rewards card might be worth it.

Just think about this, though: Credit cards offer rewards as an incentive for you to spend more money. Rewards systems would not exist if credit card companies weren’t realizing a profit from their use. After all, you have to spend money to save money.

So the next time you’re ready to pull out your rewards card and earn a few more points on a purchase, think about whether you actually need to make the purchase in the first place. You will probably find you really save the most money by turning around and walking away.

Go Banking Rates features informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide.


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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One Response to Should You Even Bother With Non-Reward Cards?

  • Sun

    Anyone not using a credit card is subsidizing those that do. Anyone who is not paying of their balance in full each month is subsidizing those who do. It’s a classic take from the poor to give to the rich.