How APR Can Actually Cancel Out Your Credit Card Rewards (and How to Avoid It)
- Alexis
- Dec 5, 2024
- 3 min read
Updated: Dec 10, 2024
Introduction: Many people sign up for credit cards because of the perks — cashback, travel points, or discounts — and it’s easy to get excited about those rewards. But there’s a catch that often goes unnoticed: high APR (Annual Percentage Rate). If you’re not careful, interest charges can quietly eat away at the rewards you’ve earned. In this blog, we’ll break down how APR affects your rewards and share some practical ways to ensure you don’t lose out.
1. The Promise of Rewards
Credit cards know how to tempt us. The promise of earning cashback, travel miles, or shopping discounts feels like free money. Typically, these rewards fall between 1-5% of what you spend.
Example: Let’s say your card offers 2% cashback. If you spend $100, you get $2 back. Not bad, right?
But here’s the thing: Those rewards only stay valuable if you’re not paying loads of interest.
2. APR: The Hidden Threat to Your Rewards
Rewards can feel satisfying to accumulate, but APR can silently drain their value. If you carry a balance month to month, interest charges could end up costing you more than what you earned in rewards.
Example: Imagine you have a balance of $1,000 on a card with an 18% APR. If you only make minimum payments, you might rack up $150-200 in interest charges over a year. Suddenly, that $20 in rewards seems pretty insignificant — it’s wiped out, and then some.
3. How APR Reduces Your Rewards
Interest compounds over time, which means the longer you take to pay off your balance, the more you’ll owe. The worst part? Your rewards usually don’t come close to covering those interest costs.
Example:
You earn 2% cashback on a $500 purchase, giving you $10 in rewards.
But if you carry that $500 balance on a card with a 20% APR, you might owe $8.33 in interest after just one month.
That leaves you with a net gain of only $1.67. The longer you carry the balance, the less valuable those rewards become.
4. The Real Cost of High APR
High APR can trap you in a cycle where you lose more to interest than you gain in rewards. If you’re not paying off your balance each month, the numbers often don’t work in your favor.
Example:
Without APR: Your $100 in rewards is worth the full $100.
With APR: If you carry a balance with an 18% APR, interest charges could eat into — or exceed — those rewards, making you lose money overall.
5. How to Keep APR from Canceling Out Your Rewards
How can you avoid this trap? Here are a few strategies to help you make the most of your rewards:
Pay Your Balance in Full: The best way to avoid interest is to pay off your balance before the due date every month. No balance = no interest.
Consider Low-APR or 0% Intro Cards: Some cards offer a low introductory APR. These can help you pay down balances while still enjoying rewards.
Track Your APR and Rewards: Make sure the rewards you’re earning are worth it. Sometimes, a card with a lower APR and fewer perks is a smarter choice.
Use Rewards Strategically: Redeem rewards for things with real value, like cashback or travel, rather than letting them sit while you pay interest.
6. The Bottom Line: Protect Your Rewards from High APR
Credit card rewards can be a great way to get something back from your spending, but they can easily be canceled out by high APR. By paying attention to your APR and making sure you don’t carry a balance, you can enjoy the full benefit of your rewards program without letting interest eat away at your hard-earned perks.
Conclusion
Using credit cards wisely means understanding how APR impacts your rewards. By choosing the right card, paying off your balance, and keeping an eye on your spending, you can make sure those rewards stay valuable.
Struggling with credit card debt and high APR? Don’t let interest charges hold you back. Fill out our form by clicking below to get personalized advice and solutions to manage your debt effectively.
Disclaimer: The information provided in this blog is for informational purposes only and should not be construed as financial advice. Always consult with a qualified financial advisor before making any decisions related to your credit card or debt management. We do not guarantee the accuracy or completeness of the information, and individual results may vary based on your financial situation.
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