Study shows credit card users maximizing rewards may actually be losing money

A news report shows many credit card users are trying to get the most out of their rewards program but are losing money in the end.

But credit card rewards really only make sense when you pay off your balance each month.

21-year-old College Student Lilly Grazioso has had her own credit card since she was 18, and she said she loves the perks.

“Yeah, it’s like a 1 percent or 5 percent cash back rewards up to a certain amount which I think is useful for stuff,” Grazioso said.

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But when she was asked how much interest she was paying on her credit card every month, she said she wasn’t sure.

“I don’t know, honestly. Maybe I should know that, I don’t know,” Grazioso said.

Chasing credit card rewards can be a trap for millions of consumers. A new Bankrate study shows two-thirds of Americans with credit card debt still try to maximize credit card rewards.

When the average credit card interest rate is over 20%, Bankrate’s Senior Industry Analyst Ted Rossman says it doesn’t make sense to continue to go into debt for one or two percent return.

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“The math works against you if you’re carrying a balance,” Rossman said.

Instead, Rossman says it’s best to forget the rewards and get out of debt by applying for a zero-percent balance transfer card.

For a small fee, you can pay off your debt interest-free for up to 21 months.

“It may not come with rewards but that’s okay. In this example, the interest savings are going to be more impactful than a few percentage points of cashback anyway,” Rossman said.

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The next step is to stop using your credit card and stick to cash or debit instead. If you’re in serious debt, turn to a nonprofit credit counseling service.

Rossman recommends Money Management International and Greenpath Financial Wellness.

“I just think it’s very important to do the math. Go for rewards later on once you’re debt-free,” Rossman said.

Studies show that young people are more likely to chase credit card rewards. Bankrate found that 77% of Gen Z, aged 18-27, are maximizing rewards programs.

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