Be careful with reward credit cards!
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Credit card debt is on the rise for many North Carolina households, and it can even sky-rocket to the point that it wrecks your finances if you don’t watch closely. Credit card reward programs are an important recruiting tool for card issuers to keep people lining up for high-interest cards with rewards that may not be as great as their ads would have you believe. Here’s a look at how you can get burned by credit card reward programs.
#1 High Interest
Some of the cash back or points rewards programs seem too good to be true. How can card issuers give you all that cash back on fuel purchases, travel, or free airline tickets? Card issuers rely on people who carry balances month to month and high interest rates on balance carryovers.
Rewards cards typically come with higher APRs (annual percentage rates) than do other credit cards. That’s because the high interest charges are necessary to pay for the rewards. Card issuers don’t cut into their profit to pay out rewards—they simply charge more interest to cover the expense.
#2 Changing Rewards
Some rewards credit cards change what type of purchases will qualify for cash back on a monthly or quarterly basis. If you don’t stay on top of this, you won’t be able to earn rewards premiums. By making rewards a moving target, they make it harder for cardholders to cash in.
If you have rewards cards in your wallet, setting up alerts to remind you to check when incentives change can make sure you’re not cheated out of the rewards you were promised.
#3 Unusable Rewards
Before you apply for a rewards card, you should verify that your spending will qualify you for rewards and that the rewards are ones you’ll use. Cash back is fine because that’s something everyone can use, but if you have a fear of flying, a Sky Miles card might be a waste.
If you live in the city and have a gas purchase rewards card, that makes no sense. Likewise, if you are single and eat out constantly, a card that gives you big cash back on groceries doesn’t add up. Only apply for rewards cards that are a fit for your spending habits.
#4 Debt Spending
Another way that rewards cards can trap consumers is by encouraging spending in which you would not ordinarily engage. For instance, a rewards card that gives you cash back on eating out and movie tickets could get you to indulge in spendy outings that you begin to rationalize because you’re getting a reward.
However, if you’re carrying a balance month to month instead of paying off your balance in full, you’re paying for your own reward (and likely someone else’s rewards too). When you carry a balance, it’s like you took out a high-interest loan to pay for those movie tickets—and you wouldn’t do that, right?
How to Get the Most Out of Rewards Credit Cards
For credit cards with rewards to be worth your while—and not wreck your finances—you have to game the system. Here’s how:
- Know what spending triggers rewards and engage only in that spending that grants you points or cash back.
- Don’t spend any money that you would not ordinarily spend regardless of the rewards offers. You shouldn’t spend more.
- Track deadlines to cash in rewards if you must take action to trigger the cash back or reward so you get what you’re owed.
- Never carry a balance over month-to-month. You’ll pay more in interest than you get back in rewards, and you’ll lose out.
- Only sign up for cards that fit your spending profile. If you already have cards that aren’t a fit, keep them, use them only occasionally, and pay off in full.
If you’re drowning in credit card debt or medical bills, living paycheck to paycheck, and dealing with debt collector calls, you may need a serious debt intervention like North Carolina bankruptcy. To find out more, contact the Law Offices of John T. Orcutt.
Call +1-919-646-2654 now for a free North Carolina bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington. Call now and get the financial peace of mind you deserve!