The Truth about Rewards Credit Cards

Reward cards are great – you basically do what you do all the time, and you get money back or some other reward, based on your spending. The Discover Card is the most famous reward card, as you get back 1% on your purchases up to some maximum rebate each year. This is literally free money: You can do anything you want with it. I just roll it back into paying my Discover bill, but some people use the reward to save money for holiday gifts, or to start a college savings account for their kids.

Other credit card issuers have become very competitive with Discover in the past few years, so if you have good credit, you can surely get one of those cards. These can either give you money, or they can give you credit at a particular merchant, like Starbucks or ExxonMobil. Obviously, you should select a card that is sponsored by a company that you patronize a lot.

If you are the sort of person who carries a balance on your card each month, then the reward cards are not for you. They tend to have higher interest rates than some other cards, and that’s a bad deal for you. Think about it. If you are paying 24% interest per year, but getting 1% back as a reward, is that as good as paying 17% interest but not getting a reward? Obviously, the lower interest rate is better for you.