Are Credit Card Points Worth It?
Credit card rewards get talked about like free money, and used the right way they really can pay you back. What makes them work is boring though: you have to treat the card like a debit card that happens to give a small rebate and pay it off in full every month.
The reason paying in full matters so much is the gap between what you earn and what you owe. A good cash back card might pay you 1% to 2% on your spending, while the card charges somewhere around 20% on any balance you carry. So one month of carrying a balance can erase a full year of the rewards you were so pleased to rack up. The points are a rounding error next to the interest.
There is a subtler trap on top of that, which is that rewards are designed to make you spend more. The card company makes money on your spending and your interest, not on your discipline, so if chasing points nudges you into buying things you would not have bought otherwise, the card is winning and you are not. Earning 2% back on money you never needed to spend is still money gone.
The way I think about it, a rewards card is only worth using if paying it off in full is automatic for you and you do not change what you buy to earn more. If you are in that spot, the points are a nice little bonus on spending you were going to do anyway. If you carry a balance even sometimes, a plain no-fee card or your debit card will leave you further ahead.
None of this matters if you are carrying a balance at 20%, because paying that off is a guaranteed return you will not beat anywhere else, points included. Rewards are a small thing to optimize only after the important stuff, clearing high-interest debt and building a cushion, is handled.
So if you use a rewards card, be honest with yourself: are the points a bonus on spending you would do anyway, or are they talking you into spending more?
