Credit card rewards can be a nice perk for your everyday spending, but some Americans may be losing them due to credit card interest charges. 21% of Americans have used a credit card to earn rewards in the past 12 months despite having credit card debt, according to a new NerdWallet survey of more than 2,000 U.S. adults conducted online by The Harris Poll.

But here’s the thing: Credit card debt is expensive, and if you’re carrying a balance, you’re probably spending more on interest than you’re earning in rewards.

Let’s say you bought a new one rewards credit card It allows you to pay back 2% of your expenses in cash. You’ll be charged $1,000 per month, but only make monthly payments of $500. Within six months your attention will outweigh your rewards. If you instead spent $1,000 and paid only $50, it would only take four months for the interest to outweigh the rewards.

Nearly 1 in 6 Americans (16%) opened a new credit card to take advantage of a sign-up bonus in the last 12 months, according to the survey. Sign-up bonuses on credit cards They are usually earned by spending a certain amount of money over a period of time and can be worth up to hundreds of dollars. But if the cardholders who cash out these bonuses have a balance, the bonus may not even be worth the effort.

It’s true that a large sign-up bonus will outweigh the interest accrued over a much longer period of time than the ongoing rewards. However, if the purpose of the sign-up bonus is to use it to get free travel or some cash back, carrying a balance reduces the value of the sign-up bonus and may eventually outweigh it if you continue to carry revolving debt. .

Let’s use the example above and assume a sign-up bonus of $500, which is quite high. If you spent $1,000 per month and made monthly payments of $500, your interest will outweigh the bonus and ongoing rewards in just 13 months. This would happen even faster if you were only paying the minimum. And since this sign-up bonus is generous, there’s a good chance the card comes with an annual fee; This is something we have ignored in this illustration for the sake of simplicity.

Nearly a third (34%) of Americans say they have strategically used a credit card to collect rewards in the past 12 months. Whether you’re trying to earn miles for an upcoming trip or earn some extra cash from purchases you’re already making, using a credit card for rewards is a smart move, but only if you can pay off the balance each month.

One tip to prevent your balance from getting too high to pay off each month is to not use a credit card for spending categories you’re having trouble reining in. So, if you tend to overspend on something specific, such as clothing, hobby supplies, dining out, etc., try using a credit card. Cash or debit card to keep this budget category under control.

If you already have credit card debt, it’s a good idea to hold off on card spending until it’s paid off. The reward math likely won’t work out in your favor, and it’s easier to deal with your debt load if it doesn’t keep growing.

This survey was conducted online in the United States by The Harris Poll on behalf of NerdWallet among 2,090 U.S. adults ages 18 and over between October 1-3, 2024. Sampling precision of Harris online surveys is measured using the Bayesian credible interval. Sample data for this study are accurate to within +/- 2.5 percentage points using a 95% confidence level. This credible interval will be wider among the subsets of the relevant population investigated. For the full survey methodology, including weight variables and subgroup sample sizes, please contact (email protected).

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