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Using a Credit Card w/ Rewards vs. a good APR?

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Frequent Contributor

Re: Using a Credit Card w/ Rewards vs. a good APR?

I'm curious, when you say you "...don't plan on keeping a balance of more than $1,000 on the card at any given time" , what do you mean by that?

 

As long as you pay off the statement balance each month, "keeping" that balance does not incur interest. For Example:

 

I spend around $500 a month on groceries. Now, I've already paid off the balance from last statement, but just given the nature of weekly shopping, when I paid it off the total outstanding balance was closer to $750; leaving $250 on there after clearing the statement balance. By the next statement it will probably be back at the $500 mark. I don't think that card has seen a $0 balance in years, but it is always paid in full each month so I have no interest charged.

Message 11 of 20
Community Leader
Valued Contributor

Re: Using a Credit Card w/ Rewards vs. a good APR?

Depends on your spending plans, I suppose. If you plan on carrying the $1000 balance for awhile, definitely go with the lower APR card. If you can pay it off within a month or two at most, get those rewards. 

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Message 12 of 20
Valued Contributor

Re: Using a Credit Card w/ Rewards vs. a good APR?


@ew0506 wrote:

Hello All,

 

What would be the better card to use?

 

1. Use my credit card with 16% APR and much greater rewards?

 

2. Use my credit card with little or no rewards, but has a 9% APR?

 

Yes, rewards are important for me to use for travel, gifts, and other items. I don't plan on keeping a balance of more than $1,000 on the card at any given time. If we look at just the financial aspect of 16% vs. 9%, we would have an easy answer, but I really like my rewards on the 16% card and how quickly I earn. The rewards can be used for just about anything as well.

 

The 9% APR card is great, and it's a fixed rate card but sadly, it has much of no rewards.

 

What would you do?


No brainer for me, the rewards card. If you PIF each month (and you should) the APR is irrelevant since neither card will ever accrue interest.

Message 13 of 20
Super Contributor

Re: Using a Credit Card w/ Rewards vs. a good APR?

Waiting for the OP to return.

In the interim, I agree with LTL that the analysis should be on the marginal differences. If 9% is the floor interest rate in the discussion then the Rewards are compared to the marginal interest between 16% and 9%, not vs 16%.

In the same way, the angst over a 2% vs 1.5%, or 1.5 UR card is often not a big difference.
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Message 14 of 20
Regular Contributor

Re: Using a Credit Card w/ Rewards vs. a good APR?

Unless your rewards card has more than 7% rewards, then you'd be better off using the 9% card if you HAVE to carry a balance.  

 

Otherwise, use the rewards card and pay it off every month.

 

As others have said, rewards are meaningless if you have to pay interest on the card.  You typically can't get enough rewards to offset the interest that you pay by carrying a balance.

 

I got about $19 on my US Bank Cash+ card last month just for using it to pay my utilities.  But then I have to subtract out the $5 or so in fees that I had to pay extra in order to use a credit card to pay utilities, so really the rewards are only $14.  But still, some rewards are better than no rewards in this case because I had to pay those bills anyway and I didn't pay any interest because I paid it off when the statement came.  In your case, you'd need to subtract your interest from your rewards just like I have to subtract my fees from my rewards to get a real picture of what you are earning.  


And don't forget, the interest keeps on going until you pay off, so although one month of interest may be less than one month of rewards, you're still paying interest next month and the month after that until you pay off, so it's rarely going to make sense to carry the balance and use the rewards card.

Message 15 of 20
Established Contributor

Re: Using a Credit Card w/ Rewards vs. a good APR?

Horses for courses.

 

If you don't carry a balance, APR makes little or no difference, and will be dwarfed in value by decent rewards.

 

If you do carry a balance, the advantage of a low APR will probably dwarf the advantages of rewards.

 

For many people, it may make sense to have both, with the low APR card being like an emergency fund, but with rewards cards used for everyday spending.


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Message 16 of 20
Established Contributor

Re: Using a Credit Card w/ Rewards vs. a good APR?


@longtimelurker wrote:

Yes, best not to carry balances, but sometimes a higher APR with rewards will win

+ 100

1000 spend with 1.5% rewards = 15

1000 spend with 2%    rewards = 20

1000 spend with 3%   rewards = 30

Cost of 1000 @ 16% with equal payments to pay in 3 months = 27

Cost of 1000 @ 9% with equal payments to pay in 3 months   = 15

-------------------------------------------------------------------------------------------------------------------------------------

                                                                                       Difference  =  12

 

If the rewards are  >=  1.5%, use the cashback card, you only need to clear $12 to win

However as @longtimelurker wrote:

The big issue is that new purchases will not have a grace period.

This could be a problem if you continue to use the card

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Message 17 of 20
Mega Contributor

Re: Using a Credit Card w/ Rewards vs. a good APR?


@dlister70 wrote:

Unless your rewards card has more than 7% rewards, then you'd be better off using the 9% card if you HAVE to carry a balance.  

 

 


No, the issue is that calculation neglects that the APR is for carrying the entire balance for a year, whereas say a 2% card gets that reward on the transaction.   Also, total spend can far exceed the balance carried (when you can pay most but not all).

Message 18 of 20
Valued Contributor

Re: Using a Credit Card w/ Rewards vs. a good APR?

It's very easy for anyone these days to get a 2% rewards card with high, double-digit interest rates.  Definitely not as easy by far and by an exceptional order of magnitude (although not necessarily impossible, given some current CU card offerings) to get a card with a 9% F, go-to interest rate.

 

My advice would be to hold on to the 9% card and continue to use it for your revolving balances, and use the rewards card with PIF to continue to retain your rewards,  Just my $0.02 and to each his or her own.

Message 19 of 20
Super Contributor

Re: Using a Credit Card w/ Rewards vs. a good APR?

Or use a rewards card for the rewards, and periodically BT amounts over to a Discover card at 4.99%.

... and still no OP ...
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Message 20 of 20
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