reward credit card vs regular credit card

[genchan]

I have a few credit cards. All of them have no yearly fee and I pay them off in full each month. Is it worth it for me to get a creti card that gives rewards like airplane miles or gas or something? I hear that most reward cards have yearly fees. Is this true?

[terry1156]

Since you pay off your balance each month, a reward card of some type would make sense. Many reward cards do have yearly fees, but I have been able to get my fee waived every year by calling the credit card company. As long as you spend a lot and are a good customer, they won't want to lose you so they will most likely waive the fee. If they don't, then just move to another reward card.

[mbhunter]

There are a bunch of reward cards that don't charge a fee in the first place. Chase PerfectCard is a good one. I regularly get over a 1% rebate credited to my next bill. It's 3% for gas and 1% for everything else.

John Wedding

[PennyPincher]

If you pay balances off every month, Discover card is excellent too. I get 1% cash back, or I can redeem my money for bigger savings - at partner stores such as Borders, Blockbuster, etc. No annual fee.

American Express Blue is another rewards card, with no annual fee. It pays up to 5%, but that's really only if you have a balance. More typically the average is between 1-1.5%. But still...more than you are getting now. If you just charge $500/month, a 1% rebate gets you $60 over the course of the year - on stuff you're buying anyhow.

I also set my bills up with my credit card to earn more back. My cable, phone, and security system charges add to my reward.

I'm glad you've encouraged me to find better cards for myself too!

[DivaJen]

We just signed up for a reward card that earns airline tickets, hotel stays, rental car discounts, etc. No annual fee. It's Elite Rewards, through MBNA. I'm looking forward to it - might as well get something back for being diligent about paying off the credit card month in and month out!

[jmjj215]

This is probably old hat to you pros out there but I would be wary about using credit cards all together. It sounds as if you all are extremely disciplined with them - which sets you apart from most everyone else - but I've thought a lot about the rewards system with the credit cards and a few things come to mind:

1) Keep in mind that the cc companies still do these reward programs - which means they're profiting from them.

2) Studies have shown (Dunn & Bradstreet, McDonald's/Taco Bell) that consumers spend more money when they use plastic than when they lay down cash - a psychological thing - so getting that 1% cashback might not be saving you anything. The study by D&B showed consumers spent an average of 18% more when they used plastic instead of cash.

3) Having those "rewards" in the back of your mind might (I have absolutely zero proof for this) subconsciously move you towards spending more for the reward.

4) Something like 65% of rewards are never redeemed.

Irregardless of paying your balance off in full and avoiding interest, you might be just spending more than you would otherwise. It's something to think about. I'd be interested in comments.

By the way, new here and absolutely LOVE it.

[terry1156]

Interesting...there may be some truth to this, but I think much more so with people who don't know how to budget than those that do. Just having cash would limit soem purchases to what you have on hand. I know there are times when I have only had cash and needed to buy something and had to go to the bank to get the extra money and return to the store to get it. I guess cash only would be a forced savings to some degree depending on how much you carried aroound.

The problem I see here are all the bank fees you get charged for taking out money. Those fees can quickly amount to much more that you might spend additionally on a credit card. I think no matter which way you choose, you just have to be responsible because they can get you with fees either way.

[jmjj215]

Terry,
The account I use at the bank doesn't charge to take out money - any bank that does needs to get with the times! Unless of course it's at an ATM that doesn't belong to that bank.
You are right in saying that a budget is the key though. If you budget all of your money before the month begins then whether you spend plastic or cash, it should be kind of a wash, as long as you stick to that budget.
I use a debit card a lot, which would put me in the plastic-spend-18%-more arena - but I stick to my budget - which I hope curbs that 18% to what is already planned at the beginning of the month.
I still avoid credit cards like the plague. Call me old fashioned

[marla]

Aren't debit cards starting to be charged fees for transactions at retailers if you use a PIN number?

[jeffrey]

Unfortunately, this is a trend that is emerging. You need to contact your local bank to find out. This isn't the case with all debit cards, but it's something that is becomming more and more common. A study of New York banks found that close to 90% of them now charge a debit card transaction fee between $0.10 to $1.50 per transaction.

Although this practice is less common in other parts of the US, it's a trend and any banking fee trend tends to take hold.

[terry1156]

If you look around, there are still places that don't charge for debit cards transactions. Credit Unions are less likely to have these charges than banks.

[jmjj215]

What is the rationale behind this charge? I heard a while ago that visa/mc can charge the merchants a higher per-transaction percentage when the customer elects to type in a PIN instead of just signing the receipt as if the debit card were a credit card. What makes the PIN so unattractive to banks/cc companies?

[jeffrey]

It's a tug of war between credit card companies and retail stores. It's a bit complicated, but I will try and explain. I won't go into the details, but give an overview and you can ask more questions if you want.

Basically, retail stores get charged differently depending on how you pay for a transaction. If you pay by debit card, the stores only have to pay $0.20 to the bank. If you sign, however, the tranaction goes through the credit card companies and the retail stores have to pay about 1.9% of the transaction cost in fees. On a $100 purchase, the fee difference would be $0.20 or $1.90. Multiply that by millions of transaction and you are talking a huge amount of money going to the banks or the retail stores depending on how you pay.

With this being the case, credit card companies and banks want you to sign for your purchases while retail stores want you to use your pin number. To encourage you to sign, banks often give rewards for signing instead of using your PIN and now also charge you a fee for using the PIN

[genchan]

Thank you all for the information. I decided to get a credit card that gives me points toward free gas. It seems like the card I would redeem the easiest.