Have you been tempted by a new credit card that offers incentives such as cash-back, airline miles, and travel points? These credit card reward offers might be attractive, but are they worth it? Here, we go over the true cost of credit card rewards. With this information, hopefully, you can decide for yourself if the latest “deal” being offered by a new credit card is really a deal or if it is a way to get you to overspend, pay extra fees and otherwise lose out.
What are Credit Card Rewards?
There are two main types of credit card rewards: cash-back and rewards points. For every dollar you spend on your credit card, you usually get a point, which can later be used toward cash-back or “free” travel, such as hotel rooms or airline tickets.
Sounds great, right? It certainly can be! Credit card rewards programs, if used correctly and responsibly, can earn you freebies and offer you perks along the way. But there is a cost to using these, and sometimes that cost outweighs the benefits.
1. Annual Fee
An annual fee is just that – a fee you pay every year to use the credit card. Fees range from card to card, with some reaching up to $500 a year and beyond. Sometimes the annual fee will be waived the first year, but will kick in upon your card anniversary and will be charged every year thereafter.
2. Perks You Do Not Use
Let’s say you do spring for a card with a high annual fee because it offers a wide variety of perks, from free airport lounge access, to free checked bags, to annual airline incidental credits. That all sounds great, but what if you do not use those perks? Maybe you do not travel often enough to reap the benefits.
3. You cannot Use Your Points
If you do acquire airline, hotel or other travel rewards points, you might run into trouble using those points. Credit card rewards are great for those who are very flexible with their plans, but what about those who want to use their points for a specific flight? Depending on the travel reward program, there might be blackout dates during holidays or high travel season, or the flights to your desired destination might not be offered using points. Consider this limitation when you sign up for a credit card with rewards and be sure you will be able to use those points how you want and when you want.
4. The Tendency to Overspend
Lastly, and probably most importantly, is the risk of overspending, in two ways. First, many credit cards with rewards offer enticing bonus offers that require a minimum spend during the first few months after opening the card.
For example, an offer might be to spend at least $3,000 in the first three months of opening the card in exchange for 60,000 airline miles. Do you normally spend that amount in that period of time? If so, the card might be worth it. However, if you need to spend more than you would just to reach the minimum spend, it is probably not worth it. You might put yourself in debt just to get some airline miles.
Second, the tendency to overspend might still be there even after the bonus period. Perhaps you justify spending more than you can afford because it will get you points. Unless you can pay off your full balance at the end of every month, the rewards promised by credit cards are not likely to be worth the financial cost.
Have You Accrued Credit Card Debt Because of the Promise of Rewards?
If you have already accrued credit card debt because of the promise of travel or cash-back rewards, you are not alone. While there are benefits to some credit card rewards, they are not for everyone. If you are in debt and need help getting out, contact a debt relief company to discuss your options. Whether it is debt consolidation, credit card consolidation or another form of debt relief, there is help out there for you.