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Rebate cards produce winners and losers
By Greg
McBride • Bankrate.com
 Have
you ever known anyone whose patented response to any request is,
"What's in it for me?" If so, odds are that they carry
a rebate credit card.
What is a rebate credit card? A rebate credit card
provides the cardholder with some form of benefit that increases
as more charges are applied to the card. Perhaps the best-known
rebate cards are those that offer frequent flier miles or cash based
upon the amount of purchases made with the card.
Though rebate cards are widely available and increasingly
popular with the credit card-carrying public, there can be winners
and there can be losers. The winners are those to whom the benefits
accrue with no strings attached -- the true convenience users of
credit.
Convenience users are those that use their credit
card for everyday purchases and pay the balance in full each month,
so as not to incur finance charges. Frequently, they use a credit
card that does not have an annual fee. Such consumers stand to reap
the rewards issued by their credit card issuers, as they incur no
finance costs and pay no fee for the privilege of toting the issuer's
card around in their pocketbooks. Any benefit earned is just that -- a benefit.
If there is a cardinal rule to rebate credit cards
it is this: Never pay interest! Those cardholders that violate the
cardinal rule end up as the losers in the realm of rebate credit
cards.
Why? First, the interest charges more than outweigh
the benefits earned on the card. The benefits accruing on the card
are modest and can be easily dwarfed by the interest charges. A
$5,000 balance at a rate of 10 percent paid off in equal installments
over the next 12 months would result in total interest of $274.95,
but the 5,000 frequent flier miles earned won't get you off the
ground. Also, the interest rates on rebate cards have historically
been about 1 percentage point higher than on non-rebate credit cards,
and often carry annual fees.
There are several factors to evaluate when considering
a rebate credit card.
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