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Don’t overspend to earn rewards

By Naomi Mannino ·
Thursday, May 3, 2012
Posted: 5 pm ET

A majority of Americans consider themselves "savers" as opposed to "spenders" (62 percent versus 38 percent), according to a recent Harris Interactive Poll commissioned by Barclays Bank.

But when it comes to earning credit card rewards, or as I like to call it, "free money for things I would have bought anyway," you can be both. But there is only one right way to do this, otherwise you end up spending more than saving, according to Greg McBride, CFA, senior financial analyst for Bankrate. He says the ideal rewards credit card candidate is someone who uses the card frequently but pays the balance in full every month.

I learned some more overall credit card reward pitfalls from McBride in this Bankrate video, "Save at the pump with gas rewards cards."

  • The cardinal rule: If you carry balance even occasionally, the interest charges will dwarf whatever reward payout you've earned. Be sure you're earning more rewards than the possibly higher interest rates these rewards credit cards might have.
  • When it comes to saving on gas only, chain-specific gas credit cards can offer more savings, up to 5 percent back at that station and only 1 percent elsewhere. But one station is not always convenient. If the card is only good at one station or pays only a fixed number of cents back per gallon of gas, evaluate whether it is the right card for your spending.
  • Nearly half the cash-back cards (48 percent) surveyed by offer higher payouts in certain categories (which can rotate), so look for the highest payoff in categories where you spend the most money.

There's just one more pitfall to watch out for, and that's overspending to earn a small amount of cash back, typically that 1 percent. The average monthly spending on a credit card without a rewards program is $465. With rewards, that spending increases to $890 according to a July 2007 Nilson Report. Gary Belsky, co-author of "Why Smart People Make Big Money Mistakes and How to Correct Them," says you may treat money differently when spending on a credit card. "Because you are not taking actual cash out of your pocket, you tend to devalue the money and overvalue the rewards in your mind. This weakens your mental accounting."

According to's 2011 Credit Card Rewards Survey, 82 percent of the cards are free of annual fees, and 67 percent of the rewards are free of expiration dates. Search the credit card tables for the rewards credit card that fits your spending patterns best.

How do you take advantage of credit card rewards?

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May 04, 2012 at 9:10 am

I doubt people spend more money than they would have just because they have a rewards card. I had a "normal" card that I never touched and once I got a rewards card I was putting all of my expenses that I could pay for with a credit card on my rewards card. I wasn't spending more's just that I had an incentive to use my card and put my normal expenses on it.