Credit Smart

Why carrying a balance on rewards cards is not a good idea


Paying interest dilutes your rewards, so if you must carry a balance, find a low- or no-interest card and forgo those points and miles.

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I currently have well over a couple of dozen active credit card accounts, but once upon a time I thought credit cards were bad and something to be avoided whenever possible.

I remember being somewhat appalled as a teenager back in the 1990s when I saw someone charging lunch at a fast-food restaurant. After all, if you can’t afford to buy your double burger meal with cash, then maybe you should just eat a peanut butter and jelly sandwich at home. I knew enough to know that compounding interest can eat you alive and turn that $5 burger meal into something more expensive than a steak dinner by the time you pay off that debt.

In my teenage naivete, I wasn’t totally wrong about the harsh realities of credit card debt and interest, but in the decades since I have learned that credit cards are not bad or something to avoid. Instead, they can be insanely rewarding when used carefully. Whether they will be rewarding for you really all comes down to how quickly you pay off your charges and when and how you choose to carry a balance.

As of August 2017, consumers held close to $1 trillion in revolving debt, most of which is on credit cards. If you are one of the cardholders contributing to that massive amount and paying hundreds of dollars in interest each year to carry a balance, I’ll cut to the chase: You are probably coming out on the losing side of the credit card rewards game. However, there is a way to get on the upside of the equation by being strategic about the best way to carry a balance if you must do that.

For most of us, there are times when a large or unexpected expense may necessitate carrying a balance over a period of time. When this happens, I recommend not focusing on the rewards you earn when you make the charge, but instead on finding or using a card with a low interest rate. I will sometimes forgo earning rewards on a large purchase that we plan to pay in installments and put it on a card that will charge me low to no interest.

If you are planning to make a large purchase in the near future, you may want to consider applying for a 0 percent APR card if you don’t already have a low-interest card in your wallet. Currently, Chase Freedom is offering a 0 percent APR for 15 months from account opening on new purchases.

If you are already carrying a high-interest balance, you may want to consider a low or no interest balance transfer card. The BankAmericard credit card may be worth considering as it has not only a 0 percent intro APR for new purchases for 18 billing cycles, but also for balance transfers made in the first 60 days.

Generally speaking, rewards cards often have higher APRs, in part to help pay for all the fancy miles and points the issuers are doling out. As such, rewards cards probably aren’t the best choice if you find yourself needing to carry some revolving debt for a period of time. If you are revolving a balance on your rewards card, know that those frequent-flyer miles are far from “free,” so I recommend paying off that card as quickly as possible and then just use it for the charges you can pay off each month going forward.

See related:Why airline ‘mileage millionaires’ love gift cards, Strategies for spouses doubling up on rewards


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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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