Reward Card Drawbacks
Credits cards used to be a cut-and-dry game, however competition sparks the fires of change and one of the major enhancements to the credit card industries was the release of rewards card programs. Reward cards are a great program and if you are careful you can actually reap substantial reward. But the credit card companies have never really been known to do anything out of the goodness of their hearts; they are always doing things that benefit their bottom line and profitability.
To anyone who is all spellbound by the bells and whistles of a rewards card, the credit card issuers are grinning from ear to ear. People get caught up in the glamour of a rewards card, but sometimes the penalties and unreasonable terms can end up costing more than the bonuses. So pay attention and we’ll cover a few things to be aware of to keep yourself out of trouble.
The first rule and the hardest one for people to grasp is don’t overspend just to earn reward points. It is very tempting to swipe that new plastic for everything to rack up those reward points, but reward cards generally have a higher interest rate and that little bit will catch up with you very quickly. If you don’t pay off your balances each month or at least as quickly as you can, you are going to find yourself at the bottom of a very bleak hole.
Since we touched on it a little already, let’s talk about the APR’s. Your interest rate is going to be higher on your rewards card than it is on other credit cards. On average you are paying 3% to 5% higher. If you shop like I do than this isn’t going to affect you very much. I tend to rack up money and pay my balance in full every month. If, however, you make a lot of large purchases that are going to take a long time to pay off, you are going to lose the benefit of any rewards you may accumulate. These higher interest rates tend to add up rather quickly.
Read every offer you get carefully. Some credit card companies will try to slip in an annual fee to get more money out of a customer, but don’t fall for that trick. With so many different reward programs out there you don’t have to worry about paying an annual fee. The competition and versatility of the credit card companies you can get almost whatever you want.
Another thing to keep an eye out for and one of the trickiest plays in the credit card playbook is the famous rewards expirations. Credit card companies are great at luring you in with outstanding programs, but even the best programs take some time to rack points up. If there is expiration on your points then you won’t be able to accumulate them fast enough to use them for anything substantial.
The final item to look for is point caps. Even if your points don’t expire they won’t do you much good if you can only earn so many annually. Some cards have a monthly cap on point earnings that are low enough to prevent any real accumulation. As always, check the terms and condition to see if your prospective new plastic has any of these pitfalls. If not, go for it. If they do take another look around and you may just find the perfect fit from a different issuer.