Chasing Rewards While in Debt: The Costly Mistake 4 in 10 Americans Are Making

The next time you swipe your credit card for a discretionary purchase, pause to consider this: 40% of Americans with credit card debt are making a critical error that could keep them in the red for decades. According to the Bankrate 2025 Credit Card Debt Report, millions of Americans are prioritizing credit card rewards over paying down their balances—a decision that compounds interest costs far beyond the value of any cash back or miles earned.

The Arithmetic of Irresponsibility

The math is stark. Ted Rossman, Bankrate’s Senior Credit Card Analyst, warns that chasing rewards while carrying a balance is “financially irrational.” With the average credit card APR at 21.47% in late 2024, even a modest balance can spiral. For example, paying only the minimum on a $5,000 debt at this rate would take 18 years to repay and cost $9,000 in interest—a sum dwarfing the 1–5% reward value most cardholders earn.

This isn’t a niche issue. The report’s “Chasing Rewards in Debt Survey” reveals that 67% of indebted cardholders make some effort to maximize rewards, with 40% dedicating “some effort” to the pursuit. Rossman’s critique? “You’re paying $20 in interest to save $1 in rewards. That’s not a strategy—it’s a self-defeating habit.”

The Generational Debt Trap

The problem isn’t confined to older generations. Younger demographics are particularly vulnerable. The study notes that 35% of millennials and Gen Z would take on credit card debt for discretionary spending like travel or dining—a habit that exacerbates their financial fragility. With 35% of indebted cardholders reporting higher balances than in 2022 and 24% feeling less confident in their ability to pay, the cycle of debt-driven spending is tightening.

Investors: Look Beyond the Rewards Lure

For investors, this data reveals both risks and opportunities. Banks profit handsomely from high-interest debt: JPMorgan Chase’s net interest income rose 12% in 2023 as borrowers struggled to pay down balances. While this boosts bank earnings in the short term, prolonged debt saturation could strain consumer spending and hurt sectors reliant on discretionary purchases.

Meanwhile, companies offering debt management solutions—such as balance transfer cards with 0% APR windows—could see demand surge. Firms like Discover Financial (DFS), which specializes in flexible credit products, may benefit if consumers finally prioritize paying down principal.

The Path to Financial Freedom

Rossman’s advice is clear: stop chasing rewards until debt is paid off. Strategies like the debt avalanche method (focusing on highest-APR balances) or balance transfers to 0% cards can slash interest costs. The data underscores this urgency: even reducing a $5,000 debt’s APR to 15% via a balance transfer could cut repayment time to 7 years and interest to $2,700—a $6,300 savings.

Conclusion: A Wake-Up Call for Borrowers and Investors

The 40% statistic isn’t just a consumer warning—it’s a red flag for markets. For borrowers, the message is simple: rewards are a luxury, not a right, when you’re in debt. For investors, the trends are equally clear: banks may profit from this mistake in the short term, but long-term economic stability depends on borrowers breaking the cycle. As interest rates hover near historic highs, the choice is stark—prioritize debt repayment, or let rewards become the albatross around your financial neck.

The numbers don’t lie: $9,000 in interest for $5,000 of spending isn’t a reward—it’s a punishment. The time to act is now.