You have likely seen TV and online ads from credit card companies touting their rewards programs. These ads highlight frequent flier miles, cash back on specific purchases and rewards for consumers who spend considerable amounts of money. A rewards card seems attractive on first blush as many people use their credit cards for big-ticket purchases that would yield big incentives. Credit card companies and banks rarely highlight the costs of these cards or the limitations of their rewards. You should tread lightly when dealing with rewards programs until you have learned some of the downfalls of these programs.
We should start by looking at the potential benefits of rewards cards for responsible spenders. You can continue to build your credit after introductory cards while earning rewards for your spending. A series of everyday purchases can turn from simple transactions to small deposits in a rewards account. These little drops in the rewards bucket can passively build toward a large reward in a short amount of time. You might be able to travel, buy special items and give gifts without doing much more than completing your daily tasks.
A big problem associated with credit card rewards programs is the incentive to spend far more than usual on a monthly basis. Your credit card company might offer a very attractive rewards program that offers points on gas, travel and grocery purchases. These purchases might be commonplace but you may be inclined to increase the amount spent per trip. For example, you might purchase snacks when making a stop at a gas station. These small increases to your typical trips contribute to higher debt and interest especially if debt is carried from month to month. You might also be inclined to make big purchases on a rewards card rather than using check or cash to take advantage of rewards programs.
You might not be aware of limitations on miles, points and rewards programs until you have applied for a credit card. Credit cards that offer frequent flier miles often have blackout dates that push your flights into travel periods that are often unpopular. Your rewards points might expire on a rolling basis, which can prevent redemption for bigger prizes. These programs are often tied to particular airlines and vendors that have limited options for reward redemption.
Credit card rewards programs are beneficial in particular for frequent travelers, small businesses and individuals who almost exclusively use their cards for big items. A frequent traveler will build up miles quickly on a reward card but redeem these points just as quickly without worrying about expiration dates. Small business owners rely on credit especially as their companies grow so they can reap rewards while completing daily tasks. A consumer who uses a rewards card only for large items is likely to pay off that debt within a few months and won’t build up interest in exchange for rewards.