Are you Really Benefiting from those Credit Cards?
These days, a number of rewards-based credit cards are available to consumers and incentives such as air miles, discounts on store-specific purchases have never been easier to obtain – or so it seems. While many of these cards may seem to provide extremely attractive incentive options, it’s crucial to read the fine print associated with each of them before signing up.
Those Rewards Likely come with High Fees and Interest Rates
Accumulating rewards may seem awesome initially, but you’re totally defeating the object if your card comes with fees that actually outweigh the benefits you think you’re getting.
In most cases, the average reward redemption value on these credit cards is around 1% of what you’ve paid to earn it. This means that if your interest rate is higher than 1% on the card, then the credit card company is the one who is really benefiting from this arrangement – and not the cardholder.
Another thing to keep a close watch on is any annual fee that may be charged – these can often be quite exorbitant on rewards credit cards.
You’ll be Encouraged to Spend More
Basic human psychology suggests that when someone is offered anything that seems like a good deal, most people will be tempted to purchase it – even if they don’t need it. As such, companies that offer reward credit cards take full advantage of this type of thinking.
Before putting any purchase on your reward credit card, do the math to see how much you’ll really need to spend before you’ll qualify for any decent type of incentive. For example, it’s not worth spending an extra $1,000 on credit just to get a reward of $10.
Rewards may come with Limitations
That long list of potential rewards that can be earned with your credit card may seem tempting, but it’s crucial to read and understand all of the terms and conditions associated with using these cards. For example:
- Rewards may expire – some credit cards rewards may expire after a predetermined period of time, so ensure that you’ll be able to redeem them before this happens
- Rewards may be limited – some credit cards reward programs limit the amount of incentives that can be earned in a quarter or during a year, so you may not end up getting as much of an incentive as you’d initially thought
- Beware of redemption thresholds – Unless your credit card offers cash-back rewards, you’ll have to convert accumulated reward points into something useful such as a gift card or even airline ticket. However, keep in mind that many reward programs require a minimum number of points to be accumulated before you’ll be allowed to redeem them for a reward – and this could mean that you’ll have to spend thousands of dollars before being able to take advantage of rewards you’ve earned
In most cases, consumers will benefit from using standard credit cards that charge lower interest rates and don’t charge annual fees of any sort instead of signing up for rewards-based options. Always ensure that all fine print is fully understood before signing up for any type of credit card – whether it’s reward-based or not.