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Rebate and Reward Credit Cards - Deal or Rip-Off?

Written by: Kristy Welsh

Last Updated: July 24, 2017

According to a survey by the Federal Reserve Bank of Boston, about 60 percent of all credit card holders have a reward card. Consumers also said rewards were the second-most important reason for choosing a specific card, behind no annual fees and ahead of a lower interest rate. Even more surprising (or really maybe not that surprising) is that one-third of consumers choose which card to use in order to maximize card rewards.

The bottom line is to apply and use the card with the rewards program that best fits your preexisting spending habits. If you already travel a lot on Delta Airlines, it would make more sense to get the card that gives you rewards for miles flown on Delta, not on Southwest. Make sense? Also, you don't want to carry a balance on a rewards card that carries an interest rate of 24.99 percent. Instead, use a card with an interest rate of 9.99 percent, if you plan on carrying a balance on your credit card. But before we get into all the nuances of rebate and reward cards, let's see how this all started.

History of Reward, Rebate, and Cash Back Cards

According to Curtis Arnold, founder of, Discover introduced the first no-fee cash-back credit card during a commercial on Super Bowl Sunday in 1986. Over potato chips and beer, consumers were stunned to learn that for no annual fee, they could get a cash rebate of up to 1 percent on every purchase, an unheard of deal at the time.

Soon after was the birth of airline rewards cards. Citibank's Advantage card debuted in 1987 and people began to see the appeal of these cards. To this day, now that almost every card issuer has jumped on the bandwagon, the competition is stiff and credit card companies have marketing departments that are constantly barraging consumers with new types of great offers and bonus rewards.

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How to Choose a Rebate, Reward, or Cash Back Credit Card

We can not emphasize this enough, if you don't think you'll be able to pay off your balance in full each month, do not choose a reward card. Choose a card that has the lowest APR if you need to carry a balance; there are plenty of these available. Better yet, avoid credit altogether. Although cash back and rebate/reward credit cards can offer some relief for costly essential items, they often carry higher annual percentage rates than traditional credit cards, according to Consumer Reports. A recent study on reward/rebate credit cards found that rates varied from 9.75 to as much as 19.99 percent. Any benefit reaped by the reward is quickly eliminated by high APRs. If you know you won't be paying off your bill each month, you should find a card with a low interest rate.

Let's get back to the question at hand, which type of rewards program is best? The answer is, that totally depends of you, your lifestyle, the products you buy regularly, services you utilize, how much you travel, and the amount of money you spend each month. Here is a short list of some of the most common scenarios offered by credit card companies.

Suggestions For Using Rewards, Rebate, and Cash Back Cards

  1. If you don't pay your balance off every month in full, you may want to pass on the rewards cards altogether. Rewards cards often have higher interest rates, you may end up paying much more in interest than you reap in rewards.
  2. Consider where you shop. Opt for cards that will earn rewards at stores and services you use most often, or offer savings on items that you actually buy regularly; this will maximize your rebate based on your individual spending patterns.
  3. Carefully review reward program rules. Read the fine print or better yet, call the company and ask if X, Y, or Z qualify.
  4. Always review your monthly statements and track points or cash back levels.
  5. Keep your eyes open for new and better offers. Competition stimulates change, so don't set loyalty to any particular card.
  6. Avoid cards with annual fees.
  7. Charge as much of your required monthly expenditures as possible.
  8. Avoid temptation. Research has shown that credit card customers are tempted to charge more in order to earn points toward a reward, in essence overspending for a freebie they don't even need.

Rebate and reward cards are an ever-evolving business. Inorder to keep on top of the game, pay off the balances each month and know the fine print of the program. If you can control your expenditures to items you need, without adding extra expense just to obtain rewards, they can be a great way to supplement income with little effort on your part.

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