Rewards credit cards can save you money, but they also have annual fees that can cost hundreds of dollars. That's why it's a good idea to check annually whether your rewards card is still right for you, especially if your spending habits have changed.
To do so, ask yourself the following three questions.
1. Are you using your rewards card correctly?
Rewards cards typically offer cash back on purchases, or alternatively, points or air miles that can be redeemed for discounted travel or merchandise. As well, these cards offer cash-back rebates for purchases made with select retailers, otherwise known as statement credits.
But these perks don't offer much value unless you pay off your purchases right away. That's because the value of the rewards can be easily negated by the interest charged on any outstanding debt that you owe.
Currently, the average interest rate on credit cards is nearly 23%, the highest it's been in decades. At that rate, paying off a credit card balance of $1,000 with monthly $50 payments will cost you $273 in interest alone.
In comparison, rewards points are commonly only worth about one cent for each dollar spent, which means that spending $1,000 will earn you about $10 — much less than what you'd owe in interest if that spending was carried as an outstanding balance for many months at a time.
2. Do your card's rewards match your spending habits?
Rewards cards typically offer bonus points for spending on specific categories like dining or travel. For instance: American Express' Platinum card offers five points per dollar spent on travel and one point per dollar for all other purchases.
However, unless you're spending thousands of dollars on travel, the redemption value might not justify the annual fee, which is $695 for Platinum cardholders.
To ensure your card is worth the annual fee, check your credit card statements to see how much you actually spend on different categories, like dining, groceries or travel. Then compare that with the bonus categories offered by your card.
If your card's rewards categories don't align with how you spend money, consider canceling it or switching to a new card that offers better rewards value for your spending.
3. Does the card's statement credits or welcome bonus offset the annual fee?
Many cards currently offer one-time welcome bonuses worth 100,000 reward points if you sign up for their card. Since 100,000 points can be worth $1,000 or more depending on how they're redeemed, that can easily offset the annual fee, even for a few years.
The other consideration is statement credits and other perks, which can change in any given year. For instance, American Express' Platinum card has a hefty annual fee of $695, but the statement credits are currently worth more than $1,500 for select purchases, not including other perks like lounge access or exclusive reservations for restaurants. Yearly rebates for the card currently include $200 back on select hotels, $200 for airline fees, a $155 credit for Walmart+, $200 in credit for Uber and so on.
"Select purchases" is the key phrase here: If you don't use Uber or shop at Walmart, or spend money on any other rebate that adds up to the same cost as the annual fee, then you might want to rethink whether the card is worth the yearly cost.
And if you do switch to a new card, just make sure you're not chasing welcome bonuses with unnecessary spending, since they're usually contingent on spending thousands of dollars within the first few months of receiving the card.
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