April 26, 2024
WalletHub recently published a question-and-answer session with Senior Lecturer of Finance, Aaron Stevens, discussing credit card recommendations and the economics behind credit card rewards.
When comparing credit cards, Stevens emphasizes prioritizing fee structures over cashback or incentives. He highlights that no-fee cards are generally preferable, except when additional benefits justify the fee, such as airline perks. Regarding interest rates, it’s cautioned that high regular interest rates are typically unfavorable, emphasizing the importance of paying off the balance monthly.
As for the limitation on cashback rewards, Stevens explains that credit card companies rely on both transaction fees and interest charges, which affect the margins for offering rewards. He adds that the reasoning behind the 2% cashback limit is: “They certainly do not want to operate at a lower margin!”