Rewards credit cards can be 'inflation fighters' but only if used correctly, expert warns

Credit card holders can take advantage of cards that offer rewards to earn cash, points or airline miles. But if those cards aren't used correctly, the rewards won't be worth it, one expert cautions. 

Some cards will even pay you a few hundred dollars just to sign up, which can come in handy especially with credit card debt piling up in part from painfully high inflation. However, unpaid debt can cripple you with high interest charges if you don't pay off the balances on time. 

According to a recent report from the Federal Reserve Bank of New York's Center for Microeconomic Data, credit card balances have already increased 26% since the first quarter and total credit card debt has already surpassed the $1 trillion mark. 

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"The second quarter of 2022 showed robust increases in mortgage, auto loan, and credit card balances, driven in part by rising prices," Joelle Scally, administrator of the Center for Microeconomic Data at the New York Fed, said in a statement.

While credit card offers like sign on bonuses or cash back can seem appealing, certain rewards cards are "only helpful inflation-fighters for consumers who regularly pay off their balances in full every month," Credit Sesame financial analyst Richard Barrington told FOX Business. 

Often, these cards "charge higher interest rates, and in the long run that interest rate difference may cost more than the rewards are worth," he added. 

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"If you’ve been accumulating debt and can’t pay off your card balances in full every month, you’re probably better off forgetting the rewards and looking for a card with the lowest interest rate," Barrington said, adding that your actual interest rate may differ from the advertised rate, depending on your credit score. 

However, if you pay off your balance every month, the interest rate difference is no longer important. In that case, look for a card that offers the best rewards for your buying habits, according to Barrington. 

Here are some of the top-rated rewards cards according to LendingTree. 

Chase Freedom Flex credit card

The Chase Freedom Flex credit card, which doesn't have an annual free and has a 0% annual percentage rate (APR) for the first 15 months, was ranked the best rewards card for 2022 overall. 

It was deemed the best in part because it "earns cash back in a variety of categories at generous rates and comes with an easy-to-earn sign-up bonus on top of that," LendingTree said.  

Cardholders will earn $200 after spending $500 in the first three months of opening the account. 

Consumers will also get 5% cash back for up to $1,500 in combined purchases in bonus categories they can activate each quarter. Cardholders can earn 5% cash back on travel purchased through Chase Ultimate Rewards, 3% on dining and drugstores, and 1% on all other purchases.

However, after 15 months consumers will get hit with a high APR ranging between 17.24% - 25.99%, according to LendingTree. 

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Blue Cash card from American Express 

The Blue Cash card from American Express was ranked the best rewards credit card for everyday purchases in part because it "has one of the top rewards rates on U.S. supermarket purchases of any credit card on the market," according to LendingTree. 

After spending $3,000 in the first six months after opening the card, consumers will get a $350 statement credit.

Cardholders will get 6% cash back at grocery stores for up to $6,000 per year. They can also get 6% cash back on select streaming subscriptions, 3% cash back at gas stations and transportation such as taxis/rideshare, trains and buses and 1% on other purchases, according to LendingTree.  

The card has a 0% APR for the first year. After that, consumers can get hit with a high APR ranging from 16.24%-27.24%.

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Capital One SavorOne 

The Capital One SavorOne rewards credit card was voted the best for dinning and entertainment rewards. 

Consumers can get 8% cash back on Capital One Entertainment purchases and tickets at Vivid Seats as well as 3% cash back on dining, entertainment, popular streaming services and grocery stores (excluding superstores like Walmart and Target). They can also get 1% cash back on other purchases. 

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Cardholders can also nab a $200 cash bonus after spending $500 within the first three months of opening the card.

Although there is a 0% APR for the first 15 months, afterward consumers will face an APR between 16.49% and 26.49%.