Just about everywhere you go someone is offering rewards credit cards. From your favorite stores, hotels, and airlines to gas stations and even amusement parks. Not to mention the countless commercials on TV promising the most cash-back or highest reward points.

So how do you know if rewards credit cards are actually a good deal?

Be Honest with Yourself

First, above all else, you have to be honest with yourself in how you use your credit card. Most people say they will get a rewards card, despite the higher-interest rate, because they plan to pay it off each month. That way, they rack up rewards without ever paying interest.

The result: Few people are actually able to do this. Life happens. You have to carry a balance as a result of unexpected expenses, an error in your budgeting or you just couldn’t resist that mini vacation. Look over your past credit card statements. How often did you pay your credit card balance in full each month? If it’s not every month, it’s time to look for a better credit card.


Let’s Review Two Popular Options

Store Credit Cards

Credit cards offered by retailers are so common today because they play into two key elements: instant-gratification and confusion.

Instant-Gratification: You’re making a purchase and you’re told if you open a store credit card, you could save 20% off your entire purchase that day. Or, maybe it’s $50 off. Whatever the offer, it’s designed to give you a perk up front. It’s very difficult for people to resist free money and these retailers know it.

Confusion: When you’re in a store checking out, people are waiting behind you, your kids are running around at your feet, and so on. It’s a very distracting environment to say the least. When offered a store credit card, if you give in to the instant-gratification (i.e. discount), you definitely aren’t going to stop and read through a whole credit card agreement. You sign the application and get out of there – without even knowing what you just signed. And you often won’t even know your approved interest rate and/or fees until your first statement arrives.

These two elements are what make store credit cards so common in wallets today. The truth is, these cards almost always have incredibly high interest rates, often up to 29.99% APR! They may carry high annual fees, among other fees. Plus, you didn’t even stop to think how opening a new credit card might impact your credit score.

Final Thought: Unless you are 100% sure you have the money to pay off what you buy every single month, skip the store credit cards. If you don’t pay it off every month, you’ll pay more in interest than what you saved with your “exclusive savings for cardholders.”


Rewards Credit Cards

The most popular credit cards today are rewards credit cards. These cards offer you reward points every time you use your credit card. You can then redeem the points for cash, travel, or gifts. Cash-back credit cards are also becoming popular. These give cash back for every purchase you make.

The question is: Do you know how much you pay for these rewards?

Rewards credit cards are designed so you believe you are getting something back for free. Since most people don’t actually add up all the interest and fees paid over the years of having the card, it appears as though they just got a free airline ticket or $50 gift card when they redeem their points. And that’s exactly how big credit card companies want you to feel.

High-Interest: Most rewards credit cards carry much higher interest rates than normal, non-rewards credit cards. These rates are often seen as high as 29.99% APR! If you are unable to pay your credit card balance in full each month, you’ve already lost the rewards game. Plus, it’s pretty easy to give 1%, 3% or even 5% cash back on a credit card when you’re paying 29.99% APR.

Annual Fees: Many of the most popular rewards credit cards you see advertised forget to mention the annual fees. These are fees simply for having the card. And, most consumers don’t notice the annual fee because it’s almost always waived the first year. But it’ll be a terrible surprise when you open your statement a year later.

Annual fees used to be $50 – $75 per year. Not so much anymore. Many of today’s rewards cards are bumping annual fees up to over $500 per year + $195 for each additional card on the account. That’s not so rewarding!

Final Thought: Figure out how much money you can put towards a credit card bill each month. Let’s say you have an extra $100 every month. That’s the TOTAL amount you can spend on any credit card and still pay it off the following month. If you can’t pay it off every month, don’t use a credit card. If an emergency pops up, look into a personal loan.


What Should You Do?

As popular as rewards credit cards are today, the decision to open and use one should not be spur of the moment. Consumers need to research their options and know what card fits their specific financial needs.

If you have enough cash to pay off your credit card in full each month, a rewards credit card could be a nice perk. But, if you cannot pay off your balance in full each month, you should look for a low-interest rate credit card with no annual fees. If an emergency happens, you can also look into a personal loan. These are low, fixed rate loans that offer affordable monthly payments. This way, you’ll know how much to pay each month and when the loan will paid off in full. It’s great for budgeting purposes.

Credit cards are financial tools to help you when you need extra money or need to carry a balance on an unexpected purchase. They are not games. In 2017, the average American household had nearly $8,000 in credit card debt. On average, American households are losing the rewards game. Be smart with your money and think of your long-term financial goals.


Get a Card You Can Trust

When choosing a credit card, it’s crucial you get a card from an institution you trust. Stores, airlines and similar businesses offering credit cards are looking for one thing – extra income. Don’t fall victim to their games.

As a credit union, we’re not-for-profit and our goal is to help you make smarter financial decisions. So, you can have peace of mind knowing we designed our credit card to help you better manage your money, not generate big profits like credit card companies.

If you would like to learn more about our credit card or have questions on consolidating high-interest credit card debt, call, text, chat, or stop in! We’re here Monday-Friday, 9am-4pm EST.

Call: (315) 671-4000

Text: (315) 671-4000

Chat: www.moneyfcu.org


Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.