How Your “Rewards Card” is Taking More than It’s Giving

In general, a reward is considered a good thing; it is generally given in exchange for good or desired behavior and it is most often something beneficial—a gift. Credit card companies have long “rewarded” their customers for their loyalty with gifts like travel miles, cash back, discounted offers, etc. The problem with the “rewards” offered by these companies is that they are offset by high annual percentage rates.

A brief history of the rewards card

The concept of the “rewards card” or loyalty programs have been around since the early 1980s. According to a 2015 post on creditcards.com, the first credit card to offer rewards was the AT&T Universal Card, which applied a certain cash amount toward the owner’s phone bill every time they made a purchase. Since then, loyalty and reward programs have flourished and by 2015, over 60% of credit cards offered some sort of rewards program.

The downside to rewards cards

The idea of getting rewarded for using your credit card sounds wonderful at first. Unfortunately, there is more

According to bankrate.com, though some rewards cards offer a 0% introductory Annual Percentage Rate (APR), “they typically carry higher interest rates than other cards once the intro period is up.” Bankrate.com warns consumers to be careful because “these cards can come with high interest rates, which can negate your rewards if you typically carry a balance.”

The APR on rewards credit cards can vary from about 12% to upwards of 22%. This is fine if you pay your credit card balances off each month. However, if you tend to carry a balance, even if it’s minimal, your rewards will not cover your interest charges.

How you can get your rewards and keep them

The best way to enjoy real gifts from your rewards card is to keep a zero balance. Ideally, you will keep a zero balance by paying down your balance every month. If you can’t pay off your balance at the end of the month, you can transfer your balance to a low-interest non-rewards card. You will pay less interest and still enjoy the benefits promised by your rewards card.