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Will I benefit from a rewards card?

Tuesday, July 17, 2012 at 11:57:08 AM

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Before you apply for a credit card with rewards, be sure that the benefits it provides you will exceed the additional costs.

In the past, you may have been under the impression that rewards cards may only be available to consumers with large incomes, but new data suggests that is not the case.

In fact, 74 percent of Americans with an income of between $20,000 and $29,900 last year had a rewards card in their name, and many used them far more often than their other accounts, according to a report from Phoenix Marketing International. In fact, 72 percent of all dollar value these borrowers put on their credit cards last year went on their rewards accounts.

However, if you're in the market for a rewards card and are currently comparing credit card offers to see which rewards are available to you, there are some things you'll need to be aware of that will inform how you should proceed.

Rewards credit cards have higher rates and more fees

Many surveys have shown that consumers value rewards credit cards because they feel as though the accounts give them "free" benefits, but this isn't technically true. Rewards accounts typically come with larger rates and fees than you may be used to paying on other cards. And if you're trying to find your best rewards credit card, it is just as important to count the costs as it is the benefits.

For instance, the survey found that 34 percent of rewards cardholders paid an annual fee, compared with just 23 percent of non-rewards accounts. Further, consumers tend to spend more on credit card rewards programs, and those who revolve balances from one month to the next tend to carry larger ones than those who have no-frills accounts.

"Rewards cards not only dominated spending dollars but also revolving balance and annual fee dollars," said Greg Weed, director of card performance research at Phoenix Marketing International. "Rewards cards have become such a market mainstay that two-thirds of revenue value among the lowest-income group was tied to rewards accounts."

So how can you know if a rewards card is right for you?

When you're reviewing credit card applications online, you'll need to consider what a card will cost you overall.

For example, if you spot what seems like a great rewards offer, it might not be the most beneficial to you if it also has a high interest rate, and you have a tendency to carry a balance over from one month to the next. As a consequence, you should not only review all the terms of a number of cards you're interested in, but also take a close look at your personal spending and debt repayment habits. This will help you to identify any potential costs you may run into as a result of the way you use your card on a daily basis.

You should also take the time to look out for cards that reward your specific spending habits. For instance, if you usually use your account to buy gas, you will likely be able to find a credit card offer for an account that will give you double or triple rewards points for fuel purchases. The same is true of groceries, travel arrangements, and so forth.

Finally, taking a survey of a few select credit card applications will help you to better understand the general costs for accounts you're interested in, this will be beneficial because you will have a good idea of what you can expect to pay, a key factor in identifying the best credit card deal for you based on your unique habits and financial situation.

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