Rewards cards can provide great benefits – but they can also tempt you to overspend. When that happens, you’re more likely to carry a balance and wipe out your rewards with interest charges.
According to a new survey by U.S. News, over half of America’s rewards cardholders have carried a balance at least once over the last twelve months. Only 46.6% of rewards cardholders never carried a balance, while 26.2% carried balances more than half of the time – and 19.1% carried a balance every month or every month but one.
What’s the effect of carrying a balance? Start by comparing interest rates with reward returns. CreditCards.com lists the average rewards card annual percentage rate (APR) at 17.13%. Most rewards cards provide returns between 1% and 5%.
Consider this simple example – you have no previous balance and rack up $1,000 in rewards-eligible charges in a month, earning a healthy 5% rewards ($50). You pay off half the bill, carry the balance in…