While the savvy shopper can gain a lot from the right credit card rewards program, it’s also important to remember that there are pitfalls involved with rewards credit cards. If you don’t avoid the pitfalls, you could end up in debt, and paying a high rate of interest that offsets any reward you might earn.
Spending without a plan
It’s easy to spend money without a plan when you use a credit card. All you have to do is swipe. And, because you don’t have to worry about draining a checking account, it can be tempting to not worry about keeping track of your spending.
If you plan to use a rewards credit card — or any credit card, for that matter — you need to have a plan. Put together a regular spending plan, and fold your credit card usage into that. Track your spending, and make sure that you have the money to cover any purchases you make with your credit card.
Spending just to get the rewards
Another pitfall is the idea that it’s okay to spend money on something unplanned because you are getting the rewards. Many consumers use the rewards points as an excuse to spend more money. This can land you in a great deal of financial trouble if you aren’t careful. Remember that spending is spending. If you weren’t planning to buy it anyway, don’t make a purchase just because you can get a few more rewards points.
Your rewards credit card should never be an excuse to justify an unplanned and unnecessary purchase.
Planning to carry a balance
This goes along with spending just to get rewards. Many consumers plan to carry a balance for a few months when using rewards credit cards to make large purchases. It can be a good idea to save up the money for a large purchase ahead of time, buy with a rewards credit card, and then immediately pay off the debt. Planning to carry a balance is problematic because many rewards cards have higher interest rates. You could easily offset your rewards points with interest charges. (Check for 0% balance transfer offers)
Lack of planning for 0% APR deals
In some cases, your rewards credit card might come with a 0% APR deal on purchases. This is one way to make a large purchase, earn rewards points, and carry a balance without worrying about interest charges. However, you need to have a plan to pay off the balance before the 0% APR disappears. There are some credit cards that keep track of the interest you would have paid, and they charge it to you if you haven’t gotten rid of the balance by the time the 0% period is over.
A rewards credit card can be a great financial tool. However, if you aren’t careful, it can mean higher costs and more debt. Plan ahead with your rewards credit spending, and you’ll come out ahead.
Check out what credit cards are available to you at Quizzle’s credit card comparison page.