5 Not-So-Rewarding Credit Card Rewards

Five Not-So-Rewarding Credit Card “Rewards”

Have you shopped around for a credit card recently?  If you have, you probably noticed that there’s a mind-boggling selection of cards out there, each offering a unique combination of terms, interest rates, and – of course – extra perks.

Credit card companies know you’ve got tons of options to choose from – especially if you’ve got a solid credit history and a decent credit score.  Perks, benefits, and rewards programs are essentially marketing strategies credit card companies use to stand out to potential customers.  To some degree, these strategies work:  After all, if you’ve got a choice between two identical cards, but one card gives you a small amount of cash back and the other doesn’t give you anything, which one would you choose?

There’s nothing wrong with choosing a credit card with perks or rewards – as long as you have realistic expectations and remember that some credit card rewards aren’t all that rewarding.

Shopping for a new credit card with perks or extras?  Here are a few less-than-rewarding offers that you may want to steer clear of:

1. Cash-back cards with high annual fees. Let’s say your credit card gives you 1% cash back on all of your purchases – but charges you an annual fee of $100.  Now let’s say you make $5,000 in purchases on your card in one year.  At the end of the year, you’ve earned $50.  You’ve paid $100.  That doesn’t really add up in your favor.
2. Brand- or store-specific rewards cards. In general, the more specific the rewards program, the less rewarding it actually is.  If you only earn discounts, cash, or rewards for shopping at a certain store, you’re probably not getting the best bang for your credit card buck.

And that’s not the only store-specific reward to watch out for. . .

3. Discounts for opening a line of credit. You’re shopping at your favorite clothing/electronics/big-box store, and the cashier tells you that if you open a store credit card, you can save 15% on your purchase – right now! Plus, as a store cardholder, you’ll get exclusive coupons, promos, and deals throughout the year.  This is a tempting offer, especially if you’re making a large-ish purchase. But the drawbacks of a store card typically outweigh the perks:  Store cards have high interest rates and low limits compared to standard credit cards – and all those members-only discounts might set the stage for unnecessary purchases in the future.
4. (Most) Travel rewards. Credit cards and airline miles are a classic combo – and if you love to travel, a card that gives you air miles might seem like a no-brainer.  But travel rewards cards often come with a bit of baggage:  For example, many air travel programs have “blackout dates” that restrict when you redeem your points for airline tickets.  Some travel rewards cards require you to book flights or hotel rooms through a pre-selected company that may not have the most competitive rates.  I’m not saying that you should write travel/airline rewards cards off altogether – but you should be aware that there’s a tradeoff when it comes to flexibility and price.
5. Roadside assistance. There are several credit cards out there that offer roadside assistance, which sounds like a great idea – why not call your credit card company if you get stranded with a flat tire or a dead battery?  As it turns out, there are a couple of reasons why this might not be the best idea: You may already have roadside assistance through your car insurance (or you may have it as part of your car’s warranty) – which means you may be eligible for a certain number of free tows per year.  Your credit card company, on the other hand, will more than likely charge you for a tow — and you may not know the cost until the charge shows up on your credit card statement.

Don’t get me wrong: I’m all for finding a great rewards credit card – used responsibly, a card that gives you cash back or really useful reward points is just one more way that you can save money or get discounts on things you’d buy anyway.  But I do recommend that you steer clear of cards that offer niche-y, super-specific rewards.  You can’t go wrong with a good cash back card with a low annual fee.

Problems with credit cards?  Looking for ways to build or rebuild your credit?  And if you need debt advice or have questions about spending, saving, budgeting, or credit cards, you can always reach out to Debt Guru.   Contact the Debt Guru team today for a free debt consultation.