A new study shows that, faced with increasing financial challenges, more and more credit card holders are abandoning their cards with many additional benefits and instead turning to cheaper options with cashback and lower fees.

Just over half (58%) of respondents in the 2024 JD Power Credit Card Satisfaction Study said they primarily use cashback cards, up slightly from last year’s 57%. Use of stored value cards — cards that help build credit but don’t offer rewards — also rose to 11%, according to JD Power. However, respondents’ use of points and miles cards as their primary card fell to 31% from 34% last year.

Financial stress changes credit card habits

With interest rates at high levels for over 20 years and continued inflation weighing on consumers, there are some signs that they are feeling financially strained.

JD Power’s survey found that 51% of cardholders have revolving debt and 54% were classified as “financially unhealthy,” as measured by questions about spending and debt, among other things. A smaller share of “financially unhealthy” cardholders use credit cards with points and miles (27%) than last year (31%).

In addition, 21% of cashback cardholders reported redeeming rewards for account credits – or credits to the card account – compared to 9% of mileage and points cardholders who did so.

“Those in a more difficult financial situation are more likely to look for products that offer a balance transfer or a lower interest rate,” said John Cabell, managing director of payment intelligence at JD Power. “They may be more inclined to exchange (rewards) for cash back or a statement credit.”

Cashback vs. miles? Fees can be a deciding factor

A key difference between points and miles credit cards and other cashback cards is that the former usually charge a high annual fee.

“There is generally a big difference in annual fee amounts between cash-back and points-mileage cards,” Cabell said. “Given the financial pressures consumers are feeling, it’s completely understandable that they would try to avoid annual fees.”

In return for the higher annual fees, points and miles credit cards typically offer special travel-related perks such as access to airport lounges, travel insurance and the ability to redeem rewards – such as points or miles – for flights and hotel stays.

However, “if you carry a balance, the interest costs typically cancel out the benefits you get from the card,” says Brian Schmehil, managing director of wealth management at The Mather Group.

“You want to treat a credit card like a charge card,” Schmehil said. “You want to set up an automatic payment to make sure you pay off the final balance each month.”

In contrast, cashback credit cards often have no annual fee and typically offer between 1% and 5% back on purchases. Their rewards can be redeemed for a statement credit, direct deposit or check.

Credit card tips for times when money is tight

For those struggling with credit card debt, Schmehil recommends considering a balance transfer credit card, which typically offers a lower annual percentage rate for a set period of time.

A balance transfer allows you to transfer your debt from one card to another and consolidate your debt, but you’ll usually have to pay a balance transfer fee to do so—usually 3% to 5% of your balance. Some balance transfer cards offer a 0% APR for up to 18 months.

Bruce McClary, senior vice president at the National Foundation for Credit Counseling, points out that while balance transfer cards can be beneficial for people looking to reduce their interest debt, it’s important to pay attention to fees and annual percentage rates after the promotional period ends.

“To get the most benefit, it is recommended that you pay off the transferred balance before the introductory period ends and not make any new purchases with the card during this time,” McClary wrote in an email to Investopedia.