Everyone feels like they’re getting a freebie when they cash in those credit card rewards, but those “freebies” may actually be costing you more than you realize, a new study shows.
Two-thirds of Americans with credit card debt still try to maximize credit card rewards, which often come in the form of miles, points or cash back, according to Bankrate, a financial products comparison site. Bankrate surveyed 2,239 adults, of whom 1,740 were credit cardholders, between Jan. 24 and 26.
However, that’s a losing strategy for consumers, said Ted Rossman, Bankrate’s senior industry analyst.
“Chasing rewards while you’re in debt is a big mistake,” Rossman said. “If you have credit card debt — and no shame, a lot of people do — it’s so important to prioritize your interest rate.”
The math behind the rewards when you have credit card debt
Credit card interest rates are at an all-time high, the Consumer Financial Protection Bureau. The average annual percentage rate (APR) on credit cards — or the interest firms charge their borrowers — soared to a record 22.8% in 2023 from 12.9% in 2013, it said.
Learn more: Best credit cards of 2023
Meanwhile, the typical rewards payout is in the 1 to 5% range, Rossman said. “It doesn’t make sense to pay 20% or more in interest just to earn 1, 2 or even 5% in cash back or airline miles.” You may end up paying more in interest than if you had just purchased an airline ticket, for example.
Besides, airline miles may not be…
