A credit card can be a helpful financial tool, helping you pay for needed items with convenience. Additionally, many credit cards have rewards programs that can be useful in building up cash back and in earning free merchandise. With the right credit card rewards program, it is possible for you to travel for free, or receive a regular check. However, it is important to be careful of credit card rewards programs; they can come back to haunt you down the road.
Don’t Spend Just to Get the Rewards
One of the biggest pitfalls of rewards credit card spending is that it is tempting to buy things because you can get a reward. You may not need an item, but you buy it anyway — because it is going on your rewards card. Pretty soon you are racking up debt, and carrying a balance.
This is where you run into trouble.
Your paltry 1%, 3% or 5% cash back on purchases is not enough to overcome the interest rate your credit card issuer is charging — something it is likely to be 13.9% or more. Carrying a balance on any credit card means interest going to someone else’s pocket, and your rewards usually aren’t worth the interest charges you are paying. If you carry a balance, your credit card is no longer a financial tool; it becomes a drain on your household wealth.
Reward Program Fine Print
Even if you are living without credit card debt, you can still run into problems with your rewards program. Black out dates on travel, as well as restrictions on merchandise that can be purchased with rewards, can turn a program into a nightmare. Additionally, some credit cards are beginning to charge a redemption fee. This either comes out of the value of your rewards, or it is charged to your credit card.
You also need to be careful of missing payments or being late. Some credit card issuers will suspend your rewards program, and charge a fee to have it reinstated. Others might even take you off the program altogether, wiping out accumulated points. It is vital that you understand the terms associated with your credit card rewards program and rewards redemption.
Practicing Prudence with Your Credit Spending
It is a good idea to practice prudence when using your rewards credit cards. Make a budget and stick with it. Be sure to track your spending, and ensure that you do not charge anything that you can’t pay off at the end of the month. You’ll be much happier, and your finances will be in much better shape.