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Do I Really Need a Reward Credit Card?

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Published: August 01, 2014

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Everyone who has read my books and my articles, knows that I am a very pro-reward guy. My philosophy is simple: it is not wise to leave money on the table. Not only do I believe that it is foolish to pay cash for anything, especially big ticket items, but it is also foolish to forgo getting points or cashback for something you have to do anyway. And no one has ever managed to live (or at least live more or less comfortably) without paying for things and services.

There is one exception to this rule. Do not even get near reward credit cards if you habitually carry a balance.

I know I have talked about that before. But I don't mind repeating it as many times as needed because people love rewards. They love them a lot! And it often so happens that they love them too much, often to their own detriment.

To illustrate this point, let's take two already excellent credit cards from Simmons Bank, Simmons Platinum and Simmons Platinum Rewards.

The first is a plain vanilla credit card with the lowest (AFAIK) regular APR in the country, currently 7.25%. The second is a reward card that earns you 1 point for a dollar spent that you can redeem for travel purchases, such as airlines, hotels, etc. Their APR is 9.25%, which is slightly higher, but still quite good. Most reward cards in the US carry a much higher annual percentage rate than that.

So the APR difference between these two cards is measly 2%. How bad can it be, right?

In order to try and answer this question (everyone is different, you know), I will have to make a few assumptions. Depending on the way you look at it, the average household credit card debt in the US stands at around $7,000 (among all households in the US) or $15,000 (among households that carry credit card debt). I will go with the lower number, although if you do carry a balance, the odds are it's higher. My second assumption is that you have stopped making new charges on this hypothetical credit card, thus the amount of your debt will remain unchanged. My third assumption is that you are only making minimum payments due every month, since household with high credit card debt tend to fall into this category.

So here are my assumptions
  • Your total credit card debt is $7,000.
  • You are not making new charges until the debt is paid off.
  • You make monthly 2% minimum payments (minimum payments tend to be 1-2% of the balance)
For my calculations, I used the Bankrate Credit Card Calculator, but there are many online calculators to choose from. Let's see how you'll do with each of the credit cards above.

Simmons Platinum
  • Credit card balance: $7,000
  • Credit card rate: 7.25%
  • Minimum payment: 2%
  • Balance payoff: 218 months
  • Total payments: $9,850.85 (18 years 2 months)
Simmons Platinum Rewards
  • Credit card balance: $5,000
  • Credit card rate: 9.25%
  • Minimum payment: 2%
  • Balance payoff: 243 months (20 years, 3 months)
  • Total payments: $11,120.32
Difference in interest: $1,269.47.
The difference in the length of time to pay off: 2 years 1 month

Considering that all the rewards you get out of your $7,000 charges you put on the reward card is [maybe] a $700 airplane ticket or hotel stay, I don't think I need to tell you that this is a sucker deal.

You may counter that you might have less than a $7,000 debt. Fine, but you might owe more.

You might say that you pay more than a minimum due every month. And/or that your point- or cashback is higher than 1%. That's fine, too, but your credit card APR is most likely to be higher than 9.25%, and perhaps much higher. Some store reward cards have 25% APR. That's insane! In fact, reward credit cards always have a higher APR than regular cards. Where do you think they get the money for this cashback in the first place?

But you don't have to guess. Just plug your own numbers into the credit card calculator of your choice and find the answer. And when you do find the answer, consider the following actions.
  • Put all your credit card debt on a card with zero or very low APR and pay it off as soon as possible. See this article.
  • Try to change your shopping and credit habits and start paying your credit card(s) in full every month.
  • Enjoy free money from your reward cards. Paying off your card in full month after month is the only sure-proof way to "beat the system".
However, as long as you carry a balance, do yourself a favor and stay away from a reward game. It is not rewarding at all!

This is a post by Andy Shuman, a credit and travel expert who blogs at He writes and blogs during and between trips that he enjoys free of charge mostly due to creative use of credit card offers. He believes that credit cards are much more than just a convenient way to pay for a purchase, and that the benefits of responsible credit habits can go far beyond getting the best rates for loans and mortgages.

Andy is the author of bestselling books from Lazy Traveler Handbook Series available on Amazon. When he's not traveling, he lives with his beautiful wife and daughter in Brooklyn, NY.

Questions? Suggestions? Keep them coming!

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