When are credit card rewards worth it and when are they a gimmick?

Credit card rewards seem like gifted money. Everywhere you look, credit cards are offering miles, points, cashback, and bonuses to sign up. The bottom line is being aware of when they’re worth it and when they’re not.

Rewards are great when you pay your card balance off every month and never pay interest. And, if you use the rewards to pay for things you already budgeted for such as groceries, gas, utilities, insurances, etc. it’s worth it. It’s not for increasing your lifestyle which is where many people go wrong. Get a card that complements your spending behaviors. If you travel, get a travel card. For those of you with a household, you might want to look into a grocery/gas card. If you want minimalism, get a flat-rate cashback card. If you can, redeem your points for a high value item such as a free hotel stay or airline flight. Finally, analyze cards that have an annual fee. Sometimes the perks and rewards will exceed that fee. If not, downgrade or change cards.

But when are rewards a gimmick? Anytime you carry a balance, the reward isn’t worth it. If you’re of a mindset that you got your reward and you’ll pay it off later, the bank wins, not you. If you’re offered a sign-up bonus and your have to spend a certain amount to earn cash, you’ll probably spend money you didn’t need to spend, just to get a couple hundred bucks. And, if you open a bunch of cards just to get rewards, you’re at risk for not being able to track them properly. You need a system for multiple cards. Finally, if you’re using the card at restaurants, stores, or just buying to get points, the rewards are using you, not the opposite.

Moral of the story:

When are credit card rewards worth it? If you pay your bill in full every month, the reward becomes a tool. However, if you don’t pay it off monthly, the reward is a gimmick. Rewards should support intentional spending, not encourage unnecessary purchases.