When you use your credit card rewards, everyone feels like they're receiving something for free, but a recent study suggests that you could be paying more for those "freebies" than you think.
When you use your credit card rewards, everyone feels like they're receiving something for free, but a recent study suggests that you could be paying more for those "freebies" than you think. (Photo : by Justin Sullivan/Getty Images)
According to Bankrate, a website that compares financial products, two-thirds of Americans who have credit card debt nevertheless want to maximize their credit card benefits, which frequently take the form of miles, points, or cash back. Bankrate conducted a study from January 24 to 26 with 2,239 people, 1,740 of whom had credit cards.
However, according to Ted Rossman, senior industry analyst at Bankrate, that's a losing tactic for customers.
A record high in credit card interest rates has been reached, according to the Consumer Financial Protection Bureau. According to the report, the average annual percentage rate (APR) on credit cards-or the interest rates that companies charge their borrowers-rose from 12.9% in 2013 to a record 22.8% in 2023.
According to Rossman, the average incentives payment falls between 1 and 5%. You can wind up paying more in interest than if you had just bought an airline ticket, for example. "It doesn't make sense to pay 20% or more in interest just to earn 1, 2 or even 5% in cash back or airline miles."
Furthermore, Michael Ashton, managing partner at Enduring Investments, discovered that one airline mile on United equals two and a half cents said, airline miles may not be worth stockpiling in the first place because they've almost turned into currency due to the fact that airlines have raised the number of miles required in pace with the price of a ticket.
Some individuals have no choice but to utilize credit cards. In those situations, by all means accrue rewards; nevertheless, in order to maximize your benefits, select a card that best suits your lifestyle.
For instance, using a cash-back credit card to earn rewards in the form of statement credits or checks that may be applied to debt reduction might make groceries and petrol top categories for earning rewards. Rossman advised making paying off or avoiding debt your top goal at all times.
Avoid overspending, which is especially easy to do with credit cards, and avoid using your card only to accrue points. Credit card payments are associated with more spending, according to studies. According to a Federal Reserve Bank of Boston report from 2016, the average value of a cash transaction was $22, whereas noncash transactions had an average value of $112.
The Biggest Reward Chasers
77% of Gen Z and 74% of millennials are the most motivated to pursue rewards. Baby boomers and Gen Xers deadlocked at 69%, according to Bankrate.
According to the poll, 77% of families making $100,000 or more annually maximized benefits, compared to 75% earning between $50,000 and $79,999, 70% earning between $80,000 and $99,999, and 68% earning less than $50,000.
