Are You Losing Money on Your Rewards Credit Card?

It’s a nice feeling to earn cash back, travel points, or other perks every time you swipe your card, and that’s exactly what rewards credit cards offer. Depending on the card, you can earn cash back, miles, or points on your purchases and redeem them for travel, gift cards, or merchandise.

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Sounds simple and lucrative, right? But are these cards worth it for everyone? ​​

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Benefits of Using Rewards Cards

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Welcome or Sign Up Bonus

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Most rewards cards offer a welcome bonus when you sign up. You earn rewards once you become a new cardholder and spend a certain amount within a given timeframe. If you’re planning a large purchase, you can use your new card to meet the sign-up bonus spending threshold without overspending.

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Travel Perks

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If you travel often, the right card can offer perks like airport lounge access, travel credits, trip insurance, and airport security memberships. These benefits can help reduce your travel costs. You can also pair some cards with an airline, hotel, or retailer loyalty program to multiply your rewards.

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Also read: 10 Money Questions Every Couple Should Ask

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Rewards on Everyday Purchases

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Rewards cards let you earn something on purchases you’d make anyway. Flat-rate cash back cards give you the same return on every purchase, while bonus-category cards earn more in specific categories, like dining and groceries. To get the most value, set up autopay for recurring bills and focus spending in predictable categories where you can consistently earn higher rewards.

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Before deciding, it’s worth considering the downsides of rewards cards too.

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Costs and Trade-Offs Associated With Rewards Cards

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Risk of Overspending

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In the race to earn more rewards, it can be tempting to overspend and go beyond your means. This is a slippery slope, since rewards cards often come with higher interest rates. For example, a $2,000 balance at 22% APR accrues about $36 in interest per month, which outweighs the 1.5% cash back ($30) you’d earn on that spending.

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Also read: How to Really Understand Your Relationship With Money

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High Annual Fee

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Rewards cards often charge an annual fee, which only makes sense if the value of the rewards and perks exceeds that cost. For instance, you’d need to spend at least $6,000 per year on a 2% cash back card with a $120 annual fee just to break even. It also depends on how proactive you are about redeeming your rewards. If you aren’t, you may leave money on the table and come out behind.

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Some cards also have complicated reward structures, such as tiered rates or rotating categories, which can make it hard to know whether you’re earning the maximum rewards on your spending.

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High Credit Score Requirement

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Good rewards credit cards usually require a good-to-excellent credit score. When you apply, issuers run a hard inquiry, which can temporarily lower your score. This is especially important if you plan to apply for other loans, such as a mortgage or a car loan, in the near future.

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So, Is It Worth Getting a Rewards Card?

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It depends on your lifestyle. If you don’t travel much, there may be little value in a card that earns airline points; a cash-back card for everyday spending could be a better fit.

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If your credit score is limited, focus on building it first. And if you have any credit card debt, prioritize paying that off.

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Rewards cards can offer more benefits than non-rewards cards, but they only generate value if you use them responsibly, pay your balance in full and on time, and stick to your budget.

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But what about people who already have a rewards credit card? Are they able to use it to its full potential?

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Are People Actually Reaping Their Credit Card Rewards?

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Americans earned about $47 billion in credit card rewards in 2024 and redeemed roughly $43 billion of that, leaving around $3 billion in unclaimed rewards on the table.

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That gap also falls unevenly. The average rewards balance at the end of 2024 was $192, but cardholders with superprime credit scores (720+) sat on $257 in unredeemed rewards, while those with subprime or deep subprime scores held just $33. Subprime cardholders also forfeited 7.1% of their rewards to expiration, more than triple the 2.2% rate for superprime holders.

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One more layer worth weighing: about 90% of all credit card spending happens on rewards cards, and many of the most popular ones come from banks like Capital One, JPMorgan Chase, and Wells Fargo that are also among the top funders of the fossil fuel industry. So it’s worth asking whether the financial benefit outweighs where your dollars ultimately flow. If not, a rewards card from a green bank like Amalgamated Bank and Beneficial State Bank would be a better choice.

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How to Audit Your Rewards Card and Find Out If It’s Actually Paying Off

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Collect Your Rewards Balances (by Card/Program)

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• Log in to each card issuer portal (or loyalty program) and note your current totals: points, miles, and/or cash back.
• If you have multiple cards, put everything in one list so you can see your full rewards picture.

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Convert Every Reward Balance Into Dollars

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• Cash back: Usually equals face value (e.g., $86.50 cash back = $86.50).
• Points/miles: Use a conservative value estimate so you don’t overstate (many people start with $0.01 per point unless they know their program is consistently higher). Example: 30,000 points × $0.01 = $300 estimated value.

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Check Expiration and Redemption Rules That Can Reduce Your Value

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• Confirm whether points expire (by date or after inactivity).
• Check minimum redemption thresholds (e.g., you can’t redeem until you hit $25).
• Look for fees or poor-value redemptions (some gift cards or “pay with points” options can be worth less than $0.01/point).

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Calculate Your Annual Cost to Hold the Card

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• Start with the annual fee (e.g., $95).
• Add any other costs you actually paid: interest charges, late fees, foreign transaction fees, balance transfer fees, etc. Example: $95 annual fee + $40 interest = $135 total yearly cost.

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List the Perks You Actually Used and Price Them in Dollars

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• Examples: airport lounge visits, checked bags, travel credits, hotel credits, Uber/Lyft credits, TSA PreCheck/Global Entry credit, cell phone protection, etc.
• Assign a realistic “would I have paid for this?” value.
• Example: 3 lounge visits × $35 = $105 perk value.

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Compute Your Net Value (the Key Number)

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• Net value = (Rewards value + Perks value) − Total annual cost
• Example: ($300 rewards + $105 perks) − $135 annual cost = $270 net value.

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Optimize (Earn More Without Spending More)

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• Review your biggest categories (groceries, gas, dining, travel) and confirm you’re using the right card for each bonus category.
• Put predictable bills (streaming, phone, utilities) on the best-earning card and set autopay to avoid interest.

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Decide What to Do Next

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• If the net value is positive and you pay in full monthly, you could keep the card. But if the card is with one of the dirty dozen banks, we’d suggest considering a green bank like Amalgamated Bank and Beneficial State Bank.
• If the fee isn’t justified, consider downgrading to a no-annual-fee version or switching to a better-fit card — especially a green one
• If you carry a balance, prioritize paying it down. Interest can erase rewards quickly (e.g., paying $30–$50/month in interest often offsets typical rewards). Consolidating your debt can help you pay it down more quickly with a lower interest rate.

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