Avoid Falling Into These Rewards Card Pitfalls
Sometimes the allure of receiving rewards for the money you are already spending on your credit card can be too great, and this can end up costing you more in the long run. Here are a few things to be careful of when you are choosing a rewards card, to make sure the benefit works in your favour.
Rewards credit cards with a yearly fee night be one of the biggest traps to avoid, unless you know you can use it enough to make the fee worthwhile. Even if you are promised the ability to earn rewards faster by using a card with a fee, take a look to see if that credit card company has an option to collect points or rewards with a free version. For example, if you spend $500 a month on your credit card on a regular basis and you earn 1 point for every dollar you spend, you would get 500 points. Let’s translate this into dollars for the purposes of this example, and say that is equivalent to $5 (100 points = $1 in this scenario). At the end of the year, you would have earned approximately $60. Now say there was another card by the same company that promised you could earn double the points if you paid their yearly fee – say $75. In this scenario you would earn 1,000 points per month, or $10, for a total rewards bonus of $120 a year. Subtract the $75 fee and you are only left with $45 – less than what you would have earned with the no fee version. If you were in the habit of spending more on your credit card each month, the fee was lower, or you were able to earn rewards at a faster rate than is shown here, paying a yearly fee for a rewards card can be worth it. Just make sure you know that what you are getting for putting the extra money out up front will pay off at a greater dividend than going for a free card.
In the same vein, don’t be too easily taken in by a sign up bonus for money – as in, you pay for the card and get a special deal of extra points, which will never add up to what you paid for in the first place. A bonus is most often worthwhile if you are able to get it without paying additional, as then you have not risked anything or put anything out. Also, signing up for a credit card to take advantage of a bonus but then never using it could hurt your credit score, so even if you think you got a good deal on the points, you might have done yourself a disservice in the future by lowering your score.
Know what your points get you
Not all rewards credit cards are made equal, so make sure you choose carefully before signing up. Do some research into how the rewards or points translate into real benefits for you. Some cards may promise to earn you rewards at a faster rate than all the rest, but if their points are not equivalent to the rest of the cards on offer, it is not worth it. Card #1 may say that you can earn 2 points for every dollar as opposed to card #2 that offers only a one point to one dollar ratio, but read the fine print. If card #1 requires 10,000 points to make the equivalent of a dollar back whereas card #2 needs a mere 1000 points, card #2 is the better deal. Spending $300 on card #1 earns you 600 points, equal to a paltry $0.06. Card #2 only gives you 300 points, but it is equal to $0.30, which is significantly more valuable. Store cards, credit cards that reward you more for making purchases in their particular store, can fall into this category easily. They promise many returns when you spend money with them, which in the end can just be empty promises if the amount of points required is astronomical before you can redeem. Often, a simple rewards credit card that earns you rewards on every purchase you make is a safe bet.
Another thing to be aware of when scoping out rewards cards is to check out their actual rewards before committing to the card. There would be nothing worse than using the credit card faithfully for months, only to determine that there are no rewards that will work for you or your family. Maybe this company is only giving out barbeques as their reward, and once you have one you don’t need to redeem any more of your points to get an additional one. Those are all wasted points. Instead, make sure there is a variety of redeemable items that interest you and that they change their selection every once in a while to ensure that you don’t run out of things you would like to receive. Sometimes there is also an option to convert your points into a credit off of your next bill – this can be a good way to use up some additional points or if you are not interested in some rewards right now – just make sure that by getting a cash credit you are not losing points unnecessarily, as sometimes cash rewards are less valued. For example, say you can get an item worth approximately $120 for 10,000 points, or receive a credit on your bill in which every 10,000 points is equal to $100. If this disparity in value is worth it to you to receive a credit, by all means you can use it but remember to have checked this beforehand. On the other hand, be wary of ‘quick’ discounts that do not earn you the full value of your rewards – when you are offered a chance to use your points for a small discount immediately at the till, for one. These satisfying-in-the-moment discounts often come at a higher price for your points than if you waited and redeemed them all together.
Rewards credit cards can be a very good deal, but there are a few things to be aware of before you commit to any. As long as you have considered the main rewards card pitfalls that flashy points cards can be guilty of, feel free to redeem to your heart’s content.