Key Takeaways
- More people are switching to using cash-back cards as their primary credit card over miles and points cards amid financial strain, according to a recent J.D. Power study.
- Credit card users also reported higher use of value cards, which help build credit but don’t offer rewards.
- Points and miles cards typically have higher annual fees, so cardholders may be shifting toward cash-back cards to be more cost-conscious.
- Experts suggest higher card fees could eat into rewards and that cash-back or balance transfer cards could be good options when money is tight.
More credit cardholders are ditching their perk-heavy cards in favor of more affordable cash-back and lower-fee options amid rising financial challenges, a new study found.
A little more than half (58%) of respondents in J.D. Power’s 2024 Credit Card Satisfaction Study reported primarily using cash-back cards, up slightly from the 57% level reported last year. Use of value cards—or cards that help build credit but offer no rewards—also ticked up to 11%, according to J.D. Power. However, use of points and miles cards as respondents’ primary card dropped to 31% from 34% last year.
Financial Strain Shifting Credit Card Habits
With interest rates at the highest they’ve been in more than 20 years and inflation continuing to weigh on consumers, there are some signs that those consumers are feeling financially strained.
The J.D. Power survey found that 51% of cardholders have revolving debt and 54% were classified as “financially unhealthy,” which it measured by asking questions about spending and debt, among other topics. A smaller portion of “financially unhealthy” cardholders are using points and miles credit cards (27%) compared with last year (31%).
Additionally, 21% of cash-back cardholders reported redeeming rewards for statement credit—or money credited to your card account—compared with 9% of miles and points cards holders doing so.
“Those that are in a more challenged financial situation tend to look for products that might offer a balance transfer or a lower interest rate,” John Cabell, managing director of payments intelligence at J.D. Power, said. “They might be more inclined to redeem [rewards] for cashback or a statement credit.”
Cash-Back Vs. Miles? Fee May Be a Deciding Factor
One major distinction between points and miles credit cards and other cash-back cards is that the former tend to charge a hefty annual fee.
“There’s a big difference in the annual fee amount generally between cash-back and points-miles [cards],” Cabell said. “Given the financial pressures that consumers are feeling, it makes complete sense that they may be seeking shelter from annual fees.”
In return for their higher annual fees, points and miles credit cards typically offer special travel-related perks such as airport lounge access, travel insurance, and the ability to redeem rewards—like points or miles—for flights and hotel stays.
However, “if you are carrying a balance, the interest costs typically negate the benefits that you get from the card,” Brian Schmehil, managing director, Wealth Management at The Mather Group, said.
“You want to treat a credit card as a charge card,” Schmehil said. “You want to set up auto pay to ensure that you pay off the last statement balance every month.”
In contrast, cash-back credit cards often have no annual fees and generally offer between 1% and 5% back on purchases. Their rewards can be redeemed for a statement credit, direct deposit, or a check.
Credit Card Tips for When Money Is Tight
For those struggling with credit card debt, Schmehil recommends considering a balance transfer credit card, which generally offers a lower promotional annual percentage rate (APR) for a period of time.
With a balance transfer, you can move your debt from one card to another and consolidate your debt, but you typically have to pay a balance transfer fee—usually 3% to 5% of your balance. Some balance transfer cards offer a 0% APR for up to 18 months.
Bruce McClary, a senior vice president at the National Foundation for Credit Counseling, notes that while balance transfers cards can be beneficial for people who want to reduce the amount of interest they owe, people should pay attention to the fees and the APR after the promo period ends.
“To maximize the benefits, it’s recommended to pay off the transferred balance before the introductory grace period expires and avoid making new purchases on the card during this time,” McClary wrote in an email to Investopedia.
