Reward cards are very popular; according to a survey from the American Banker’s Association, 83 percent of credit card users have at least one rewards card. It can be easy to see why. A reward card gives you cash back, miles or points based on what you spend. If you use the card wisely, you essentially earn free money or prizes. While reward cards have a number of benefits, it’s worth remembering that getting one or two percent cash back or so is never worth going into debt. Before you open and starting using a card, make sure it will really work for you.
Check Out the Rewards
Before you apply for and start using a reward card, it helps to read the fine print and get a sense of how easy it is to redeem the rewards and how long those reward points will last. If you’re considering a card that offers airline miles or other travel rewards, find out if there is a lot of blackout dates or big restrictions on when and where you can use your miles. It’s also worth it to find out when points expire. If your points expire before you’ve accumulated enough to actually use them, the card isn’t doing you any favors.
Check Out the Fees
Take a look at any fees charged by the credit card when you apply. A high annual fee can eat away at any rewards you get from the card. For example, if your spending results in you earning 100 dollars worth of rewards in one year, but the card has an annual fee of 250 dollars, you’re actually losing money in the deal. The same is true if the card has a lot of other fees, such as foreign transaction fees, which make it more expensive than paying cash or using a non-rewards card without those fees.
Avoid Carrying a Balance
Unless your rewards card offers cash back that’s equal to or more than the rate of interest charged on the card, it’s always a good idea to try to pay your card off, in full, at the end of each billing cycle. Carrying a balance can also negatively impact your credit score and can put you at risk of falling deep into debt again.
Keep Track of Your Spending
One way to avoid carrying a balance on your reward cards and avoid getting stuck in debt is to keep good track of your spending on the cards. Making a budget each month can help you avoid overspending on your credit card in pursuit of rewards.
If you have a rewards credit card, think of the cash back or other bonuses you receive from the card as the icing on the cake. Don’t let the pursuit of miles or points steer you away from your other financial goals or cause you to get off course when it comes to your spending. If you need help creating a budget or deciding whether a reward card is a good choice for you, contact us today. We’re happy to help.
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Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
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