Turning credit card rewards into cash can make everyone feel like they’re getting a freebie, but that “freebie” may actually be costing more than you think. has been revealed in a new study.
Two-thirds of Americans with credit card debt still try to maximize their credit card benefits. milespoints or cashback, according to bank rate, a financial product comparison site. Bankrate surveyed 2,239 adults (including 1,740 credit card holders) from January 24th to 26th.
But Ted Rothman, senior industry analyst at Bankrate, says this is a losing strategy for consumers.
“Chasing perks while carrying debt is a big mistake,” Rothman says. “If you have credit card debt, there’s no shame in it, but many people do, but it’s really important to prioritize interest rates.” ” he said.
The math behind rewards when you have credit card debt
According to the Consumer Financial Protection Bureau, credit card interest rates are at an all-time high. The average annual percentage rate (APR) on credit cards, or the interest rate charged by interest rate companies to borrowers, rose from 12.9% in 2013 to an all-time high of 22.8% in 2023, the report said.
learn more: Best Credit Cards of 2023
Typical compensation payments, on the other hand, range from 1% to 5%, Rothman said. “One, two, even he doesn’t make sense to pay more than 20% interest to earn 5% cash back or air miles.” Pay more interest than you would if you had bought a flight ticket There is a possibility that it will happen. , for example.
Plus, airline miles might not be worth saving anyway. Michael Ashton, managing principal at Enduring Investments, said airlines have increased the number of miles required based on the price of a ticket, effectively turning it into cash, with United’s 1 air mile being 2.5 He said it was equivalent to cents.
“The best strategy is to spend your money as quickly as possible,” he says. “It’s a waste of assets because it doesn’t earn interest.”
Credit card debt increases:Graph showing how Americans’ total credit card debt has reached an all-time high
Sometimes credit card debt is unavoidable.
Of course, some people use credit cards because they have to. If that’s the case, take advantage of the benefits. Make sure you choose a card that fits your lifestyle to get the most benefits.
For example, groceries and gas may be the categories that earn you the most rewards, and cash-back cards can help you earn rewards in the form of statement credits or checks that can be applied toward debt repayment. Rossman said paying down or avoiding debt should always be a top priority.
Don’t spend money or overspend on credit cards just to get rewards. This is especially true with credit cards.According to research People tend to spend more when paying with credit cards.a 2016 survey According to the Federal Reserve Bank of Boston, the average value of cash transactions was $22, compared to $112 for non-cash transactions.
Who are the biggest reward chasers?
By generation, Gen Z (77%) are leading the way in the pursuit of rewards, followed by 74% of Millennials. It turns out that the bank interest rates for Generation X and Baby Boomers are tied at 69%.
According to the study, 77% of households with annual incomes of $100,000 or more maximized their compensation, compared to 75% of households with annual incomes of $50,000 to $79,999, and 75% of households with annual incomes of $80,000 to $90,000. 70% of households earned $9,999, and 68% earned less than $50,000.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Contact mjlee@usatoday.com. Subscribe to the free Daily Money newsletter Get personal finance tips and business news every Monday through Friday.
