Owning a reward credit card can be exciting. After all, who doesn’t want to get incentives or bonuses from his/her spending? Nevertheless, before you sign up for that reward credit card, carefully consider if you are ready to manage one.
The poor choice of a reward credit card and incorrect management can lead you to bad credit. Below are smart tips on how to choose and use a credit card with rewards, the smart way:
Pay off your full balance. Carrying your balance from month to month can easily get you into bad debt. Each time you leave a balance in your account, you incur an additional interest rate which is often higher than the rate of non-reward credit cards. The next thing you know, you are stuck in debts deeper than you can imagine.
“Up to” does not mean you always get the best deal. If the offer says you can earn “Up to” 5% rebate from your purchases, don’t sign up right away. That may sound exciting but the term “Up to” means that enjoying the 5% rebate is still subject to specific conditions. This is why it is crucial to read the fine print.
Watch out for high maintenance rewards cards. If the reward credit card carries high annual fees, is it still worth keeping? Will the value of rewards you can earn far exceed your maintenance costs? What about the interest rate, late penalty fee, over-the-limit charge, cash advance rate, etc? Avoid reward credit cards with expensive maintenance costs that can offset the rewards you can earn.
High rewards are not always the best. Credit cards that offer Frequent Flyer Miles Rewards may be tempting. Nevertheless, getting that free flight will not be easy. If you are not a frequent credit card spender nor a frequent traveller, it can take you years to qualify for that free flight.
Be practical and consider your lifestyle. Will it be better for you to choose a Cash Back reward credit card or a Gas Reward credit card?
Understand the limits. Does the credit card impose a blackout date? Is there a maximum limit to the number of points or value of rewards you can earn per month or year? Can you get points from any type of purchase or will you only get points if you buy from selected merchants? Can you carry over you unused points over to the next year or will you those points be forfeited?
Each reward credit card has its own set of rules and restrictions. You want to take your time in understanding the Terms & Conditions. Some cards may impose unreasonable limits and these are the ones you should avoid.