Do You Ever Redeem Credit Card Rewards?

3 in 10 Americans never bother to redeem credit card rewards, so why use reward credit cards?

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

Bankrate released a new survey this month that leads to a puzzling question about consumer credit card usage. The topic of the survey focuses on how Americans use and redeem credit card rewards.

The big result

Roughly 3 out of every 10 credit card users (31%) never bother to redeem the rewards from their rewards credit cards. Another 38% have not redeemed their rewards within the past 6 months.

The fascinating details

How often do you think to redeem credit card rewards?

The survey also breaks down the most frequently used rewards. These are the rewards that get redeemed the most:

  • Cash back 49%
  • Airline miles 17%
  • Gift cards 12%

The survey also breaks down how different generations use their rewards:

  • Millennials are more likely to use cash back rewards (67% vs. 43% for older Americans)
  • Old Millennials (ages 27-36) are now more likely to own a credit card than their Gen X counterparts (61% vs. 56%)
  • Baby Boomers and the Silent Generation are still the most likely to own a credit card (64% and 69% respectively)

Finally, the survey asked card users about annual fees. Only one in four cardholders is willing to pay annual fees. Millennials are the least averse – 34% to 24% for the rest of the population.

What you can do

“Reward credit cards usually have higher interest rates by design,” explains Gary Herman, President of Consolidated Credit. “It’s not unheard of to have a rewards credit card with 18 or 19% APR or higher. If you don’t redeem the rewards, why face the higher interest charges?”

We looked at the CreditCards.com Weekly Rate Report from April 19. The national average APR sat at 15.72%. However, average rates for rewards credit cards were higher:

  • Cash back credit card 15.77%
  • Airline credit card 15.74%
  • Point reward credit card 15.81%

Keep in mind that those are national averages. When you apply for a new credit card, the issuer tends to start you at a higher rate. In some cases, if you haven’t negotiated lately with your card issuers, your rates may be above 20%.

“Facing a 21% interest rate may make sense if you earn 3% cash back and manage your debt strategically,” Herman argues. “But if you can’t manage the debt effectively then that 21% APR will quickly offset any rewards you earn. It makes even less sense if you never bother cashing in on the rewards you earn.”

Herman recommends that anyone who wants to use credit cards needs to take time to develop an effective debt management strategy. The following resources can help you get started: