Rewards credit cards can be the perfect tools for spending especially during the holidays, if you know how to use them to your advantage. On the other hand, if you’re not careful, spending with the best rewards credit card can lead you to the trap of bad credit, which in most cases, is difficult to get out of.
So how can you make the most of your reward credit card and avoid the debt trap? Consider these reminders:
Charge everyday purchases to your credit card with caution. Does your reward credit card offer to give you points on all types of transactions, regardless of where the purchase was made? If so, then you can rack up more points by using your credit cards with rewards to pay for your groceries, gas, and other daily expenses. However, this should be done with extreme caution.
When you receive your monthly income, be sure to set aside your budget for your expenses such as food, clothing, household supplies, gas, etc. If you will use your reward credit card to do your shopping, see to it that you have enough cash set aside for repayment. Pay off your charges immediately and don’t wait until your due date of payment. This way, you can be sure that you don’t spend the cash you have set aside for food budget on unnecessary expenses.
Pay off your full balance each month. All reward credit cardholders must take this advice to heart. Since the best credit card rewards typically carry higher APR than their non-reward counterparts, the only way you can truly benefit is to avoid interest rate fees. Obviously, you can do this by not leaving an unpaid balance in your account.
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Charge only what you can afford to pay in full and if you have doubts, then you should not charge it to your reward credit card. Chasing points will be a useless if you end up paying more on interest rate charges. The amount you pay on interest rate fees could even be higher than the value of reward you earn from credit card in a year.
Do not max out your credit limit. Here is another important rule that applies for all cardholders, not just for reward credit card owners. See to it that you do not max out your credit limit even if your reward credit card offers a low rate or a zero introductory rate.
Even if you are sure that you can pay off your balance in full before your due date, you should still not max out your limit. This is because how you handle credit affects your personal credit score. The points you will earn is certainly not worth it if your credit score will suffer.
Check your account first and make sure that you have sufficient limit left before using your rewards credit cards for shopping. More importantly, set your own spending limit that is much lower than your actual credit limit. Make sure that you leave at least 50% of your credit line free from charges.