The proposition of earning rewards just for spending money is tempting to be sure. Many people enroll in one or more rewards credit card programs for this very reason. Hey — might as well, right? Well, yes and no. It ultimately depends on the nature of the card(s) you choose and how you go about making payments on them.
In other words, credit card rewards are worth it sometimes but can be detrimental too. Here are four factors to consider before opening any new line of credit.
Advantages of Credit Card Rewards
Credit cards with rewards are a popular choice because they offer cardholders something in exchange for making purchases, both small and large.
#1: You Can Rack Up Rewards for Spending Money Routinely
If you’re someone who already uses a credit card regularly, it makes perfect sense to prioritize your spending on a rewards credit card. This positions you to earn the heftiest perks possible on purchases you were already going to make. This includes big-ticket items you’re planning to pay off over time, as well as small daily expenses like lunch with your coworkers or that new pair of shoes you’ll pay off each month.
You may even decide to switch from a debit card to a rewards credit card because of these sweet perks. If you go this route, remember to use your credit card like a debit card .
Charge only what you can afford to pay in full at the end of the month.
#2: You Can Customize Your Rewards to Your Lifestyle
There really is a rewards credit card for everyone. People who fly frequently for work or pleasure can rack up airline miles for these trips. Those who love dining out can earn cash back for each dollar spent at a restaurant. Travel enthusiasts looking to fulfill their wanderlust can take advantage of a card offering points toward airfare and hotels. Those who find themselves behind the wheel a lot can utilize a gas card for fuel rebates.
The list goes on and on.
Risks of Opening a Reward Credit Card
#1: You May Feel Motivated to Spend More to Accumulate Rewards
Accumulating rewards feels good — so good it may motivate you to spend more than you usually would. You may notice your balance inching higher each month as a result. Credit card debt of any kind is a slippery slope, thanks to the “buy now, pay later” mentality it can encourage and the higher-than-average interest rates it typically nurtures.
Many Americans find themselves in over their heads when it comes to credit card obligations. Case in point: These Freedom Debt Relief reviews cite overwhelming credit card debt as the reason for needing to pursue debt settlement in the face of growing interest and possible bankruptcy. This is a testament to how easy it is to inadvertently rack up credit card debt, especially when rewards serve as a carrot dangling in front of the cart-pulling horse, so to speak.
#2: Carrying a Balance May Negate the Value of Rewards
If you find yourself carrying a balance on your credit card, the interest you’re paying may start to negate the value of whatever rewards you’re earning. Two percent cash back will do you little good if you’re paying 18 percent APR on a substantial balance. As The Balance points out, in cases like these it would actually save you money to make purchases in cash or on your debit card rather than pursuing a rewards card with a balance.
Credit card rewards can absolutely be worth it, provided they’re relevant to your lifestyle and accrued through regular spending. If you start spending just to earn rewards, or find you’re paying more in interest than you are getting in perks, it’s time to reconsider.