I was talking the other day with a colleague who is considering getting a mileage-earning card. He has a card now that he revolves balances on, and was wondering whether it made sense to switch to a rewards card.
A fairly detailed CardWeb analysis found that rewards cards tend to charge higher rates of interest, and that consumers who revolve balances are better off shooting for the lowest interest rate rather than the best rewards.
That’s only half the story, though, because it doesn’t have to be an “either-or” proposition.
Get two new cards: one card with zero interest on balance transfers (often a teaser during the opening months of card membership) and a second card with the rewards you want. Transfer outstanding balances to the first card and put new charges (that you pay off every month!) onto the second card.
Now, the kicker on the zero interest balance transfer cards is usually that you have to have a charge on the card each month, and interest is applied on the new charge since payments are applied to the transferred balances first. So just put a dollar’s worth of gasoline on the card once a month religiously.
The key, naturally, is to reign in overspending. But there’s no reason you can’t earn rewards without high interest costs for everyday spending you’re able to pay in full each month, just because you have outstanding balances.
A fairly detailed discussion of the best mileage-earning credit cards can be found here.