Are Retail Reward Cards Really Helping you Save?

by April Lewis-Parks

Nearly every financial professional will list coupons, discounts and perks as smart strategies for cutting down costs. After all, you wouldn’t pay full-price for a new dress if you could find the same one for half price. The problem is that this line of thinking doesn’t always apply when it comes to signing up for reward credit cards with your favorite retailers. Shopping with credit instead of cash usually changes things and it’s important that think about your typical shopping behavior before signing up for a rewards card.

1. How do you typically pay?
This is the first question you should ask yourself because it may shed light on whether a rewards card will end up saving, or costing, you money. For instance, if you typically pay with cash or debit, it may be lucrative to start using a reward card if you are disciplined enough to pay off the balance immediately with money from your bank account. The same is true if you typically pay with credit but pay off your balance immediately. If you tend to carry a balance on your credit card, however, this may spell trouble. Interest rates on rewards credit cards are generally higher than those for traditional credit lines. Not only will you be paying more in charges, but the additional amount you pay in may diminish the value of your earned rewards.

2. How often do you shop there?
In order to earn significant savings, you may be required to shop at a certain location more frequently than you normally would. If you make trips to Target, Banana Republic or your store of choice several times a month – and pay off your balance each billing cycle – a reward card that gives you a discount off your purchase and allows you to rack up additional points can help keep your costs low. However, if you show up to Target once a month for your obligatory dishwasher detergent and cleaning supplies, your rewards may not do you any good until your 100th visit.

3. Do you already have a rewards card?
If you already carry a rewards card that can be used at any location for any type of purchase, getting another product that is specific to one retailer can be redundant. Instead, use your traditional reward card for purchases to avoid managing several balances and payment plans.