Category: 

What is a Rewards Credit Card?

Some rewards credit cards offer free vacations.
The interest rate paid on a credit card balance is often much more than the rewards earned from the card.
Article Details
  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 26 July 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article

Due to the increasing number of banks and financing agencies, many credit card companies now offer a rewards credit card. This type of credit card is meant to entice the customer by offering some type of reward for using the card on a regular basis. Rewards can be a small percentage of cash back, discounts at local stores, gas cards, frequent flyer miles, or chances to earn points that can be used for gifts and services selected by the credit card company.

Not every rewards credit card is equal. This is especially the case when one tends to pay high interest on a rewards credit card and does not pay off the balance monthly. A rewards credit card that might offer free gas for example, may technically not save any money, when people pay interest on balances.

Sometimes the rewards credit card means one has to use the card fairly regularly in order to earn points toward gifts or services. The hope of the bank is that the person will maintain a balance and thus owe interest. Interest paid may offset any rewards a person might earn. Also, it may take a long time, and a lot of money spent, to earn some of the more attractive rewards.

Ad

Generally, one is better served by avoiding a rewards credit card that requires a lot of spending to get a reward and that has high interest rates. However, a rewards credit card may work well for a person who transacts all business on a credit card and then pays off the balance at the end of each month.

Often people who are single owners of businesses, or who are in limited partnerships with a spouse can benefit from a rewards credit card, especially when their expenditures can be paid off monthly. If spending is high, the rewards credit card will quickly accumulate rewards. This might mean getting a free vacation, or even earning money toward the purchase of a vehicle.

However, a business that cannot meet its monthly expenditures may find they actually pay more in interest than they would pay for a vacation or a car. Interest rates on high amounts owed can quickly become costly.

Financial experts suggest that one thoroughly read any material before signing up for a rewards credit card. As well, if one does not have the money to pay off credit card bills rapidly, financial experts urge using cash instead whenever possible. If credit must be used, look for the card that offers the lowest possible interest, as saving money may be a reward in itself.

Ad

More from Wisegeek

You might also Like

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email