The word ‘reward’ has the kind of sweetness about it that few other words can match. When it is attached to a credit card, it makes the deal even more attractive. Some people spend left, right and center just to earn a few credit rewards. This is exactly what credit card companies want and they tempt customers with everything from the promise of cash back to free airline tickets if they spend a certain amount. It’s not surprising that users of rewards credit cards have been found to spend more on credit than users without rewards cards.
Many of us regularly use reward programs because they are so attractive. What they fail to understand is that reward programs are not always all they are touted to be and often end up paying a huge price. No wonder credit cards are the main cause of debt in North America.
Here are some facts about rewards credit cards that you must know before using any reward programs:
- They have a higher average interest rate: Most users of credit cards with reward programs are so focused on receiving the rewards that they fail to see that their credit cards often have a higher than average interest rate. The higher interest rate usually eliminates the advantage gained from any reward, such as cash back, but users rarely realize this.
- They may require you to pay more than an item is worth: Users are so eager to earn points that they often fail to realize that they are required to pay more than an item’s worth. For example, a cell phone that costs $200 may cost you $300 worth of points. This negates any advantage you may have gotten from the program.
- Airline miles programs are often not worth the trouble: Airlines often give low priority to free flyers and allocate very few seats (only about 6% of all seats, according to some estimates). They can also have blackout dates around peak travel seasons and major holidays. These make the free flights offered by credit cards almost unusable.
- They require you to spend a certain amount in a month to qualify for the rewards: Many credit cards require you to spend a certain amount of money in a month if you want to qualify for the rewards. This requirement is often hidden in the fine print that most people find too tedious to read. Therefore, you should make it a point to read the fine print before signing up for any credit card.
These facts do not mean that you should not use rewards credit cards at all. But you must be careful. Such credit cards are best suited for people who do not carry a balance on their credit cards and, therefore, are not affected by the higher interest rates. They are also good for people who make an effort to use the reward points.