Tony Mecia is a business journalist who writes for a number of trade and general-interest publications. He writes “Cashing In,” a weekly column about credit card rewards programs, for CreditCards.com
The content on this page is accurate as of the posting date. Please see the bank’s website for the most current version of card offers.
Dear Cashing In,
I’m probably going to be adding to my credit card balance this year for Christmas. I’d like to be able to get rewards for all the spending. What’s the best card with a low interest rate that also has good rewards (cash back)? – Joan
There are plenty of ways to earn rewards on holiday shopping. Obviously, any spending that you put on a rewards card earns rewards. Sometimes you can boost these rewards by having the right card. For example, the Chase Freedom card this quarter is offering 5x rewards for spending at Walmart and department stores – which are good places to grab holiday gifts.
There are other ways to boost your points, too, such as by using online shopping portals. They can give extra points for merchandise bought online. In addition, you can often use your points to buy presents.
However, as tempting as it is to want to earn rewards on all your additional holiday spending, you absolutely should not focus on rewards if you are carrying a balance or will not be able to pay off your cards in full at the end of the month. For starters, reward cards tend to have higher interest rates than cards that don’t. According to the Nov. 22, 2017, CreditCards.com Weekly Credit Card Rate Report, rewards cards charged an average of 16.24 percent interest, higher than the overall average (see current card rates). Low-interest cards weren’t too much lower, at 12.89 percent.
In contrast, the rewards you can earn from cards typically do not average much higher than 2 percent. The highest flat-rate cash-back cards come in at 2 percent. Category bonuses can sometimes be as high as 6 percent, although there is no way to fit anywhere close to a majority of your spending into that high of a bonus category.
If you were to spend $500 on a cash back card that gives 2 percent back, that would be worth $10 in rewards. But if you don’t pay off the balance in full on that card, the interest charges on that $500 a card with a 16 percent APR would be around $86 for the year (compounded monthly). You do come out slightly ahead if you carry the balance for only a month, but trying to outperform high interest rates with relatively meager rewards is a dangerous game you’re likely to lose.
A better move would be to set aside the temptation to earn rewards for now and to find a low-interest card or one with a 0 percent introductory offer. Some cards, such as the Chase Freedom, Discover It, and American Express EveryDay cards have no annual fees and limited-time 0 percent offers on purchases while also offering some rewards. Again, it is best not to focus on the rewards but rather find a way to minimize your interest expense if you are carrying a balance.
The best advice, though, is to try to align your spending with your income so you don’t go into debt in the first place. This isn’t always possible, and it can be hard work. But avoiding credit card debt can give you financial peace of mind – which sounds like a fine present for the holidays.
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