The math behind credit card rewards and interest
Reading Time: 3 minThe appeal of rewards credit cards is obvious: Welcome bonuses are often high enough to pay for a round-trip award flight, and many cards have impressive earning rates on popular spending categories like dining out and groceries. But it’s never worth paying more than you can afford to earn points or miles.
A survey from Bankrate showed that around 7 in 10 consumers with credit card debt are actively pursuing rewards. If you're in that camp, the numbers likely aren't on your side. After all, the average credit card interest rate is currently over 20% — well above the rewards rate you can earn with the best travel credit cards.
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Here's how the math plays out. Imagine someone has $5,000 in credit card debt with an 18% APR, and that they're currently paying $200 per month toward their balance.
If they stopped using the card for new purchases, it would take two years and eight months to pay off the debt with $1,313.60 lost in interest along the way. If this person managed to earn 3% in rewards on the original $5,000 in spending, they would have just $150 in rewards value up front.
The bottom line: When credit card debt is involved in a rewards game, the math just doesn't work.
Whether your goal is flying first and business class to far-flung destinations with airline miles or you just want to squeeze out a few family vacations with rewards points, it rarely makes sense to carry a credit card balance that accrues interest. When you do, you’re almost always paying the credit card companies more than your rewards are worth.
Earn travel rewards without a credit card!
One of the best ways to travel for free is by earning points and miles. And while you might think you need a credit card to earn rewards, we have a secret for you — you don't, thanks to this program. This company offers plenty of ways to earn its points just by going about your daily life. (And spoiler alert: their points are incredibly valuable!) So take a look and see how you can start earning travel rewards right now with no credit card required.
Start collecting points without plastic!A safer way to play the rewards game
The following tips can help you end up "ahead" with credit card rewards:
- Use 0% APR offers with a plan. If you opt for a card that offers a 0% APR on purchases for a limited time and also earns rewards, have a plan to pay down the balance before the intro offer ends. If you wind up carrying debt beyond the introductory offer, you'll pay interest based on the card's variable APR.
- Only charge purchases you have the cash for. Use travel and rewards cards only for purchases you have the cash to cover each month. If you're worried about overspending, consider using rewards cards just for regular, planned bills like gas, groceries, and utility payments.
- Don't let rewards entice you to overspend. Earning an exceptional rewards rate on spending is nice, but don't let rewards and sign-up offers trick you into spending money you should be saving.
- Pursue credit card sign-up bonuses with caution. Only sign up for new card offers with minimum spending requirements you can hit the natural way (with planned spending and bills). If you have to buy stuff you don't need and can't afford to pay those expenses off, a credit card sign-up bonus is not worth it.
Keep your valuables safe on the road
Make sure your passport, money, and other valuables are always close by with the Boxiki Travel Hidden Money Belt. With its flush-to-the-waist design, this belt bag can be hidden under your clothes, and its RFID-blocking material keeps your personal information safe.
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