A credit card serves as a beneficial financial aid, providing easy access to purchases when needed. Many credit cards also feature rewards programs that can accumulate cash back or earn you free items. With the right rewards program, you might even get free travel or receive periodic checks. However, it’s important to exercise caution with such rewards programs, as they could financially hinder you in the future.
Beware of Reward-Driven Spending
A common pitfall with credit card rewards programs is the temptation to buy items you don’t really need just to earn points or rewards. The desire to accumulate rewards could lead to impulsive shopping behavior, thus increasing your debt and balance on the card.
Care Needs to be Taken Here
Your humble 1%, 3%, or 5% cash back from purchases is seldom sufficient to compensate for the interest that your credit card imposes, potentially being 13.9% or even higher. Having a balance on any credit card means the interest is going into someone else’s pocket, and the rewards generally aren’t worth the interest charges you’re footing. If there’s balance outstanding on your card, it stops being a financial aid and starts becoming a financial burden.
Understand the Small Details in Your Rewards Program
Even when you have no credit card debt, your rewards program can still create issues. Restrictions such as blackout dates on travel, or limitations on items that can be purchased using rewards, can transform a seemingly beneficial program into a frustrating one. Furthermore, some credit cards have started imposing redemption fees, which either reduce the value of your rewards or appear as an additional charge on your card.
Also, make sure payments are made on time. Late or missed payments might lead to suspension of your rewards program, or even removal from the program, wiping out any collected points along with potential fees for reinstatement. Hence, it’s essential to thoroughly understand the agreements associated with your credit card rewards program and its redemption process.
Exercising Judiciousness in Your Credit Spending
It’s advisable to be sensible when using your rewards credit cards. Create a budget and diligently stick to it. Keep a close watch on your spending, and avoid charging anything that you can’t afford to pay off by the end of the month. Implementing these practices will help maintain healthier finances, and overall happiness.
