I personally don’t have a rewards credit card. For me, it is not beneficial because I always tend to carry a balance on my card. So, obviously, I would end up losing more money from the high interest rates these cards carry than I would actually get back in rewards. Yet, rewards credit cards are becoming increasingly popular with American consumers. And, the credit card companies are laughing all the way to the bank as a result.
Another mistake that many people make is failing to spread their debt out onto various reward credit cards. In fact, a recent report in the New York Times indicated that about 75% of Americans burden just one reward credit card with all of their debt. This is a mistake for two main reasons. First of all, many of these cards have a cap on how many rewards can be earned within a certain period of time. So, any purchases you make with the card after this limit has been reached don’t count toward your benefits. Another problem with putting all of your credit card purchases on one rewards card is that it most likely doesn’t take full advantage of the program. For example, many offer bonus points for certain purchases. So, using your card that offers bonus points for purchases made at a grocery store doesn’t make much sense when you have another card that does offer bonus points for gasoline purchases.
Surprisingly, research has also shown that people tend to spend more on rewards credit cards than they do on traditional credit cards. More than likely, this is in an attempt to earn those oh-so-tempting rewards the cards dangle in front of our faces. Of course, this is just what the credit card company is hoping for – the more debt you have on the card, the more likely you are to NOT pay the balance off at the end of the month. This equals more money for the credit card company in the form of finance charges that you must pay.
And, even if you do pay your balance in full each month, the credit card company still makes more money when you make more purchases on your card because the merchant must pay a small fee every time the card is used. So, next time you use your rewards credit card, don’t think you are the only one that is benefiting!
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