Rewards credit cards are the latest craze in plastic and the promotional attempts of credit card issuers can be tempting, even for people who don’t use credit cards very often. While rewards cars might be attractive, however, there are a few disadvantages that can make them more of a hindrance than a benefit.
Interest Rates
Rewards credit cards generally have higher interest rates than other cards because the cost of maintaining those rewards must be offset by the issuer. When you’re paying 16% interest on a revolving credit card balance, that paltry 1% cash back loses some of its attraction. You will also find that rewards cards often have annual fees, which sets you back even further.
Late Payments
With non-rewards credit cards, late payments are usually punished with a fee, often more than thirty dollars. But when you have a rewards credit card, your punishment might be quite a bit more. Some issuers will revoke the rewards points earned during the previous month if a consumer misses a payment or pays their bill a few days late. If you charged quite a bit during that month, you’ve just lost all of your benefits.
Fine Print
When your rewards credit card comes in the mail, make sure to read the fine print in the insert that describes the cardholder agreement. You might find that those rewards aren’t as attractive as you once thought. For example, interest rates on balance transfers, fees for cash advances, and over-limit fees might be far more expensive than with your average credit card. Don’t be lured in by the promises of rewards only to be caught off-guard by hidden fees and costs.
Changes
Most credit card issuers reserve the right to change their rewards policies at any time, which means that the benefits of the card are far from set in stone. You could have the card for six months, racking up all kinds of rewards, then receive a statement in the mail that alters your cardholder agreement. This is especially common with mergers and acquisitions in the financial industry.
Expiration
Your points or cash back with rewards credit cards aren’t set in perpetuity, which means that they expire after a given period of time. Some issuers will expire your points if your card is inactive for several years, while others force you to use your points quickly, regardless of whether you continue to use your card.
Caps
Some rewards credit cards have caps on the number of points or the amount of cash back that you can earn in a set period of time. If you use the card more often and exceed that cap, you can kiss your reward points goodbye.
If you’re going to use rewards credit cards, it is best to pay the card off in full each month rather than carrying a balance. Make sure you read the cardholder agreement in full to make sure you understand the terms, and don’t hesitate to contact the issuer with questions that crop up in your mind. It can help to compare similar rewards credit cards to ensure that you’re getting the best possible deal.
Furthermore, you’ll get more out of your credit card if you choose one that benefits your spending habits. For example, if you travel for work once a month, you might want to get an airline rewards card so you earn free miles for vacations or business trips. The same goes for consumers who use their credit cards to pay for everyday expenses like groceries and gasoline. A card that gives you more rewards for those purchases would be the best choice.
