The Credit Card Sign-Up Bonus: Worth It?

You’ve probably seen ads or gotten offers in the mail from credit card companies that promise hundreds of dollars or thousands of points as a bonus for opening a new account. They’re certainly tempting—who doesn’t want free money? But is that really what happens? Even after you earn the bonus, could the new card put you in a situation where you’re looking for credit card debt relief?

Before signing up for a new credit card with an attractive sign-up bonus, here’s what to consider and how to make sure you’re really getting a good deal.

How a Credit Card Sign-Up Bonus Works

Most credit card sign-up bonuses aren’t actually for signing up. They should be called “using the credit card” bonuses. You have to spend a certain amount of money on the card within a specific time frame. Depending on the card, the bonus could be cash or rewards points. 

For example, you might have to:

• Charge $500 on the card within the first three months to earn a $200 cash-back bonus, or 

• Spend $4,000 within the first three months to earn 80,000 points. 

Perhaps most important is understanding how you earn the bonus so that you can decide:

• If you can earn the bonus without having to spend unnecessarily.

• If the benefits of the bonus outweigh the cost to acquire it.

The key to successfully using these offers is to figure out how you can get the sign-up bonus by spending the way you already spend. In other words, if you have to buy things you wouldn’t normally buy to qualify for the bonus, then you might lose money on the deal.

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Key Features of a Credit Card Sign-Up Bonus

Here’s what to research when you compare credit card bonus offers and decide if it’s a good idea to open a new credit card:

• Can you meet the spending requirements without stretching? 

• Is the bonus in cash or points? If points, can you use them?

• Can you redeem your rewards indefinitely? 

Next, take a step back and look at the credit card specs. You may prefer a no-fee card. If there’s an annual fee, is it affordable? If you carry a balance on your card, you’ll want to know the interest rate.

You can use this info to calculate whether opening a new credit card will benefit you in the short as well as the long run. Most bonuses look good up front, but some may have rewards that are complicated to use, or the bonus is reduced by fees.

This simple checklist can help you decide if a card is right for you:

• Spending requirements are reasonable

• Bonus type (cash or points) meets your needs

• Redemption limits are reasonable

• Annual fees are affordable

• Interest rates are reasonable (or irrelevant if you don’t carry a balance)

1. You Can Easily Meet the Spending Requirements

Remember, you only get the credit card sign-up bonus if you spend the required amount within the specified time. Some bonuses have high spending requirements, such as $4,000 in three months. Whether you can spend that much depends on how much you typically charge to your credit cards each month.

Say your monthly spend is $2,000 and a credit card asks you to spend $500 in three months for the bonus. That’s reasonable for your budget. You could probably earn the bonus without drastically changing your spending habits. It could be an easy way to earn money doing what you already do.

Be accurate and honest about your spending patterns to avoid losing money on a welcome offer. To find out how much you typically spend on your credit cards each month, look at your current credit card statements and find the line that says new charges. Look at that number for the past several months to get an average amount. If you use multiple credit cards on a regular basis and plan to move all your spending to the new card, do this for each card and add up the new charges across all accounts to get your total typical monthly spend.

If you can easily meet the spending requirement with what you typically charge to your cards for routine expenses, then you might be able to make some money for the purchases you’d make anyway.

Things get tricker when a credit card requires you to spend several times the amount of what you’d spend in an ordinary month. For example, your monthly spend is $1,500 and a credit card asks you to spend $6,000 in three months. Can you afford to do this? If you’ve been planning on a big purchase, like a new couch or appliance, it might work out. But then you’d have to factor in whether you could pay off the card each month or if you’d rack up expense interest charges. 

You want to avoid getting a new credit card just for the enticing sign-up bonus and then wind up spending more than you normally would just to meet the bonus requirements. If you have to spend money to make money, that’s a red flag.

Read more: How many credit cards should you have?

2. The Card Gives the Type of Bonus You’ll Use

Some credit card points are more complicated than a cash reward. Cards that offer cash back are easy. Points are increasingly common, and might take some expertise to use in the best way. On the flip side, points for travel or some other specific item could be right for you.

Types of credit card sign-up bonuses:

• Cash. Easy to spend and calculate.

• Statement credit. Easy to use but limited to paying off your credit card debt.

• Points/miles. Calculating value is more complex, but sometimes worth more than cash

• Gift certificates. Only redeemable at specific venues.

3. The Redemption Limits are Reasonable

Points and miles can sometimes be redeemed only through certain portals, and may not be exchanged for cash or statement credit. Only accept a points bonus if you’re okay with the limitations. Most cards are generous in how you redeem points, but a handful of cards are more restrictive. 

Some bonuses expire when you don’t use them. Find out if there’s an expiration date. If so, it should be reasonable. And if it forces you to overspend, then it’s probably not worth it. Credit cards are designed to entice you to use them more often. Don’t chase bonuses and redemptions by spending when you normally wouldn’t.

4. The Annual Fee Is Worth it

Typically, the more generous the reward, the more likely it is that the card will have an annual fee. 

Many credit cards have an annual fee, which can be close to $100 or even more. Credit cards that offer the biggest sign-up bonuses usually charge the highest annual fees. A card that offers a $750 welcome bonus might charge as much as $395 per year, but the additional rewards throughout the year could make the fee worthwhile for some people. 

Check to see if the card you’re considering has an annual fee, and subtract that from the value of the credit card sign-up bonus. Also consider if you’re going to keep the card open after the first year and what the future cost of the annual fee will be.

5. You Don’t Usually Carry a Balance

Rewards and cashback credit cards tend to carry higher interest rates because of the cost of managing these programs. Carrying a balance can quickly negate the value of any rewards you snag in the credit card sign-up bonus. It’s something to factor in while you decide if this is worthwhile for you. 

If you carry a balance, it’s very easy to spend more on interest than the value of your bonus. That’s how credit cards work. It’s why credit card issuers are willing to be generous. They are pretty certain that sooner or later, you’ll pay them more than they pay you. If you currently or normally have a balance, it’s not a good idea to sign up for a new credit card no matter what the bonus offer may be.

6. A Credit Card Sign-up Bonus Should be a True Bonus

Once you’ve thought about all the ways you can make or lose money with a credit card sign-up bonus, you’ll have a better idea if it’s a good idea. In general, it’s good to be cautious about taking on new credit of any type, because it can be a lot easier to get in than it is to get out. The key is to manage your credit card debt so that it doesn’t overwhelm your finances.

If You’ve Already Taken Advantage of One Too Many Sign-up Bonuses…

Sometimes sign-up bonuses get the better of us. If your credit card debt has already started to balloon out of control, then the most important next step is understanding your options for getting it paid off so you’re not stuck in an endless cycle of paying off debt. 

For more than 15 years, Freedom Debt Relief has been helping people manage their debt. We’ve created thousands of custom debt relief programs for the best possible results. Get a free debt evaluation from our experts.