Using credit cards to earn rewards can be a good choice if you know how to manage them carefully and avoid some common pitfalls. Here are four common facts you should consider when using your cards to earn points, no matter which rewards program you choose.
1. You May Be Tempted to Open a Card You Don’t Need
Credit card companies will try to sell you on the idea of travel reward cards, cash back cards, points cards, gas rewards, grocery rewards, and more.
Think Carefully. Do you travel frequently? Do you fill up your car often? Consider your lifestyle and make sure any rewards card you choose is one that you can actually benefit from.
2. They Can Lead to Bad Spending Habits
A rewards credit card can make you more likely to splurge. You may be tempted to purchase something you normally wouldn’t just so you can earn more points.
Any rewards card you open should be an added perk to your normal credit card use – not as a goal to achieve. Spend as you would normally, and enjoy the rewards that will eventually follow.
3. You Might Forget to Redeem Your Rewards
Don’t forget to cash in your rewards. Your points will never increase in value, but they can expire over time. Remember the Air Miles debacle of 2016? Or what if the store your points are good for goes out of business?
Once you’ve accumulated enough points or cash for something you need – redeem them! This uses up the points and saves you money on an item you already needed. Win-win.
Tip: Instead of having four rewards cards with many points distributed among them, only use one card to earn rewards so you can redeem them more often.
4. They Can Come With High Interest Rates and Annual Fees
Many times, rewards or store credit cards will have high interest rates – up to 30%! Additionally, you may be faced with annual fees. These fees aren’t worth it if you aren’t spending very much on your card.
Consider this: You may need to spend $100 on your rewards credit card just to get $1 in cash or points. If you take a year to pay off this balance and your APR is 20%, you just spent over $10 to get that $1 reward.