Although one in three people say
Although one in three people say credit card rewards are not worth the hassle, according to a new survey from credit card comparison website WalletHub, the right rewards card is actually worth more than its weight in gold. The best cards are capable of earning the average American more than $2,000 in rewards value, after annual fees, over the first two years of use. In other words, two years with the best rewards credit cards are worth more than the $1,610 tax cut the average American was expected to receive in 2018. The best rewards cards are also worth more than $1,200 more than the worst cards through the first two years, WalletHub found — more than enough for a nice vacation, for instance.
A great deal therefore rides on choosing and using plastic wisely. So it’s fair to wonder why many people don’t recognize that value.
“Because shopping for a credit card is complicated and depends on so many variables, most consumers have no idea what is at stake when selecting a credit card,” Audrey Guskey, an associate professor of marketing at Duquesne University, said. “The good news for consumers is that the competition is getting more intense among credit card companies, and so consumers can reap the benefits of more rewards and higher points. But keep in mind not all credit card rewards are the same, and so it really depends on your lifestyle.”
However, people often have difficulty accurately and honestly evaluating their lifestyle and corresponding financial needs. Picking the right rewards card “involves predicting your future behavior, and most of us tend to be overly optimistic about future behavior — saving money, losing weight, picking up a new hobby,” said John B. Dinsmore, an associate profressor of marketing at Wright State University. “So, we may struggle not only to predict our spending but the likelihood of using the rewards.”
Fine print certainly plays a role in people’s perception of credit card rewards, too. For example, 6 in 10 rewards credit cards require cardholders to earn a certain minimum amount in rewards before they can redeem, according to WalletHub. Such a practice is reminiscent of prerecession trickery on the part of credit card issuers, yet neither competition nor increased regulation have led to the retirement of this restriction.
“The credit card companies making these offers believe that removing the barriers to redemption will cost them more than the offsetting increase in business that would occur by doing so,” said John R. Sparks, associate dean for undergraduate programs with the University of Dayton School of Business Administration. “Some credit card companies have removed some barriers to redemption; however, in exchange, the rewards rates are significantly lower. Until credit card companies are convinced that the move will be profitable, they have no incentive to change.”
Some cards might initially appear more attractive than they will be in practice, too. That’s especially true for people who don’t compare credit card offers carefully enough and wind up with a card that does not suit their spending habits or account management preferences. For instance, more than 3 in 10 credit cards offer rewards rates that change depending on how much a cardholder spends and when they spend it. Such terms will appeal to and work well for some consumers but not others.
“If your rewards are contingent on use or time period, I would make it your primary method for routine purchases or not carry the card at all,” said M. Garrett Roth, an assistant professor of finance and economics at Gannon University. “Paying multiple, small credit card bills for the sake of a trivial difference in rewards is probably not worth the additional time investment.”
It may therefore come as little surprise that nearly three-quarters of consumers (74 percent) say that cash back is their favorite credit card rewards currency, over points and miles. Cash back tends to be the most straightforward type of credit card rewards, as there’s no need to guess how much cash back is worth. Cash back also cannot be devalued by credit card companies increasing the amount needed to redeem for a certain item. Cash is worth what it’s worth, and that is not determined by credit card companies, unlike points and miles.
“Cash is the most liquid of assets and provides the greatest flexibility to consumers,” said Sparks.
At the end of the day, the one in three people who say credit cards aren’t worth the hassle are not wrong. But neither are the two in three who say they are worth it. Blanket statements don’t really work here. Some cards are worthwhile, while others are best left alone. The key is to find a card with rewards rates that complement your spending habits and redemption policies that suit your preferences. If you can find such a card and use it responsibly, you could have hundreds of dollars extra to play with this summer and beyond.