Wallet Hub: Sujay Datta on rewards credit cards

Do you think most people take full advantage of rewards credit cards?

Probably not. Credit card rewards are not always easy to comprehend, especially in terms of understanding what pattern of expenditure would lead to what kinds of rewards and optimizing rewards in that way. For instance, cards typically have tiered benefits – rewards are higher for some expenditures than others. Optimizing spending to maximize rewards can prove to be daunting to many, either because of complexity or lack of time or both. Only the extreme price conscious consumers are likely to attempt it, I think.

Do you agree with the notion that cash users subsidize the cost of credit card rewards?

I don’t know much about that debate although it would seem that it is much more likely for people who carry forward balances (and hence eventually pay back more than they borrow) to be subsidizing such rewards. Also, partner companies might be subsidizing some of the rewards.

What would you say are the biggest/most common mistakes that rewards credit card users make?

I think the biggest mistake one could make is to try too hard to optimize spending, thereby sacrificing psychological and possibly financial well-being. If we spend in way as to accumulate rewards across a bunch of cards, we might have to wait a while before we can reap the benefits of those rewards because every person’s monthly or annual expenditure and hence reward earnings have limits after all. This is certainly the biggest mistake I made. For a while, I tried to optimize my spending to maximize rewards – use Card X for certain expenditures and Y for some others. Besides having to wait to use those rewards meaningfully, it proved to be quite taxing, often leading to anxiety and regret if I sensed that I may have been failing to optimize properly. Spending became a mathematical jugglery in a sense. Imagine enjoying a great dinner with your family and worrying about which card you should use to pay. I realized that it is not worth making life so complicated. I have now settled on a single card, one that was the least restrictive in reward allocation, universal in use, and simple enough to understand. Now I load up all of my points on that card and when it comes to using the rewards, I usually accumulate them in large enough volumes to be able to spend on mid-range to big ticket items. Thus, in my case, simplicity has proved to be psychologically and financially beneficial.

Do you have a credit card with rewards? If so, how did you select it?

I certainly do. The card I use almost always has a straightforward reward program. The reward points also apply to a vast selection of expenditure categories with minimal restrictions. Rewards have begun feeling like real benefits as opposed to mere promotional tools. When it comes to credit card rewards, I feel that too many companies make things too complicated for customers but those that intend to simplify reward earning and use will win my endorsement.

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