Your Credit Card Points Are a Transfer From the Broke to the Comfortable

Credit card rewards aren’t free money. They’re funded by interest paid at an average 25.2% APR, mostly by the roughly half of cardholders who carry a balance, plus over $30 billion a year in fees, plus swipe fees baked into the price of nearly everything you buy. In 2023, Federal Reserve researchers published a paper on just this topic. They found that about $15.1 billion a year flows from less sophisticated cardholders to more sophisticated ones. From less educated to more educated. From poorer zip codes to richer ones.

I say this as a beneficiary of this morally questionable system that’s so normalized in American life. I’ve flown for free. I’ve stayed in hotels for free. My signup bonuses alone have covered significant parts of trips I wouldn’t have taken otherwise. I did all of it by following the standard advice: get the rewards, pay the statement in full, never carry a balance.

The standard advice is correct. But multi-billion-dollar credit card companies aren’t in the business of losing money. If rewards flow out, more money has to flow in from somewhere. So the real question isn’t whether the points are worth it. It’s who’s paying for them.

A rewards program has to be paid for. Banks aren’t running a charity that happens to have a 25% APR. The money comes from three places.

Interest. Americans paid more than $160 billion in credit card interest in 2024, up 50% since 2022. About half of all cardholders revolve a balance month to month, and those revolvers pay 94% of all interest and fees in the system. The average general-purpose card now charges 25.2%, the highest rate on record. 25%+ in interest, let that sit with you for a second.

Fees. Another $30 billion in 2024. Late fees, annual fees, cash advance fees. Also the highest volume ever recorded. Even savvy card owners pay fees for the “best” cards out there.

Interchange. Merchants paid about $149 billion to accept credit cards in 2024. Merchants don’t eat that. They price it in, which means everyone pays it at the register, including people who pay cash and get zero points back for it. It functions like a small sales tax that nobody voted on, collected by Visa.

Your free flight is an incentive to promote the adoption of credit cards in nearly all facets of commerce. It’s a small fee for credit card companies to pay to keep the money faucet flowing for them.

In 2023, four researchers at the Federal Reserve published a working paper with an unusually honest title: “Who Pays for Your Rewards? Redistribution in the Credit Card Market.” They looked at account-level data across the market and netted out what each cardholder earned in rewards against what they paid in interest and fees on those same rewards cards.

The finding: sophisticated users profit from rewards cards at the expense of naive users, and this holds regardless of income. A high-income person who mismanages a rewards card subsidizes the system just like a low-income one. But sophistication isn’t evenly distributed. Of the $4.1 billion paid annually by cardholders who lose money on their rewards cards, $2.6 billion comes from people with sub-prime and near-prime credit scores. Only $0.4 billion comes from super-prime.

The mechanisms are somewhat sickening when you think about them long enough. Rewards cards encourage people to spend more than they otherwise would, and the extra spending becomes unpaid balances. Add it up, and the researchers estimate $15.1 billion a year moving from less to more educated people, from poorer to richer areas, and from high-minority to low-minority neighborhoods.

The airport lounge is quiet. The people paying for it aren’t even in the airport because they’re working extra hours to pay the minimums on their cards.

Here’s the thing that bothers me most. The standard advice, the advice I followed, the advice every finance creator gives, cannot work for everyone. If every cardholder paid in full every month, the interest pool that funds rewards would collapse and the programs would shrink to match. Meaning, if we didn’t have people in crippling consumer debt, Chase wouldn’t have any meaningful rewards to dole out to card owners. In the same way, if credit card companies didn’t incentivize using their cards, people would likely just use debit cards, spending only the money they actually have accessible.

If you carry a balance, even sometimes, the rewards math is irrelevant to you. Two percent back against twenty-five percent interest isn’t a strategy; it’s like trying to bail out a sinking ship with a tablespoon. The only number on your card that matters is the APR, and the only primary reward worth chasing is a zero balance. f you have several cards, pay the minimum on all of them and put everything extra on the highest rate. That single change is worth more than every points guide ever written.

And if a card is making you spend more, that’s not a side effect. That’s the product working as designed.

I’m not going to tell you to cut up your cards. Credit scores matter in America, whether we like it or not. And honestly, personal action only goes so far on problems this size. I recycle, and I know perfectly well that my recycling, by itself, changes nothing. This is the same scale. Systems this large get fixed by laws or they don’t get fixed at all.

So if you have credit cards, pay them in full every month. Take the rewards. But know what those rewards actually are. Know that you only benefit because someone else is suffering, and consider influencing change when at the ballot box.

Some politicians have noticed. In February 2025, Bernie Sanders and Josh Hawley introduced a bill capping card interest at 10%, with Ocasio-Cortez and Anna Paulina Luna carrying the House version. That’s bipartisan legislation, in a time when that rarely happens. Of course, it died in committee anyway. The Credit Card Competition Act, reintroduced this January, would force real competition on swipe fees. The banks’ argument against it is that your rewards would shrink. They mean it as a threat. Read it as a confession. They’re telling you, in writing, whose money is funding the points you use to go traveling.

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