When Are Credit Card Rewards Worth It?



One of the main reasons many people use credit cards is getting freebies. Free flights, concert tickets and retail discounts are just a few of the rewards promised by major credit card companies.

What’s less obvious, though, is how much money you must spend to get any of this stuff. With most credit cards, a few token purchases per month will not produce a single worthwhile reward. Without big-time spending, the fact that your card technically offers rewards is more or less meaningless to you.

All of this raises some key questions: how much you need to spend, is it worth it, and how can you creatively earn credit card rewards without going into hock?

Annual Fees

The cost of obtaining credit card rewards is not just the amount you spend using the card itself. Most credit cards with rewards programs levy annual fees of $50 or higher, according to CBS MoneyWatch. While cards with annual fees usually enable you to accrue rewards points faster than no-fee cards, MoneyWatch warns that the fee is likely to outweigh the value of the extra points you accumulate.

Spending Requirements


How much you need to spend to get rewards depends on the specific card (or cards) that you use and the rewards in question. The consensus, though, is that big-time rewards only accompany big-time spending. CBS MoneyWatch names the Chase RealCash Debit Card as an example: it requires cardholders to spend $1,000 per month or more to obtain the maximum 3% cash-back reward on purchases (on top of a $25 annual fee.) Different cards restrict rewards to specific stores or chains.

Other credit card issuers rotate their rewards to coincide with specific times of year. The Discover More Card is currently offering 5% cash-back bonuses on spending at gas stations, hotels, movies and theme parks. After September 30, filling up at the local gas station reverts back to just 1% cash back, but you’ll get 5% on groceries and at drug stores. With cards like this one, it is not just the amount that matters, but also the time frame during which you spend it.

On the plus side, that Discover card has no annual fee and, other than scheduled periods like the one above, generally uses a straightforward model: 1% of your annual purchases given back to you as a rebate.

Are Rewards Programs Worth It?

Not all personal finance experts agree that credit card reward programs are worth the cost or hassle. In her book Debt-Proof Living, Mary Hunt warns that “consumers are often willing to pay annual fees and make frequent use of the card because they believe they are getting paid to do so.” In fact, this is an illusion, and a dangerous one to the extent that consumers incur debt in pursuit of rewards. After all, Hunt says:

“Just remember that when all the smoke clears, the reason for [reward programs] is increasing the credit-granting company’s bottom line – not yours. They are not in business to give you free gasoline or free plane fares or a rebate check at the end of the year. They are in business to turn a huge profit, and if returning a minuscule portion to the consumer is the way to do it, that’s exactly what they’ll do. But it is not reasonable to think one of these companies would give away more than they receive.”

Airline Miles


Hunt uses airline miles as an object lesson in the wrong way to use rewards programs. Let’s say an airline miles program offers you one mile for each dollar charged to the credit card. Let’s also say it takes a minimum of 25,000 miles to obtain one free round-trip airline ticket from the program. That means you would need to put $25,000 worth of purchases on that one credit card before you earned enough miles to do anything worthwhile with them. Broken down into dollars and cents, each dollar you charge on that credit card is worth one cent toward your “free” plane ticket.

That hypothetical ticket becomes even more expensive if there’s an annual fee involved.

Pursuing Rewards Intelligently

(House Of Sims)

That said, it is possible to accumulate credit card rewards in an intelligent and cost-effective manner. In his New York Times best-seller I Will Teach You To Be Rich, Ramit Sethi advises using your credit card for any and all normal spending. Rather than going into debt to accumulate rewards (the wrong approach), Sethi advocates using credit (instead of cash, check or debit) for routine purchases that you would have made anyway, including:

  • Groceries
  • Gas
  • Utilities
  • Cell phone bills
  • Rent/mortgage payment
  • Clothing
  • Entertainment

This way, consumers can spend enough to earn meaningful credit card rewards while also spending no more than they would without such an incentive. Just remember: you do have to pay off your balances in full each month. If you have the means and the discipline to do it, then by all means go ahead, and beat the credit card companies at their own game.

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