You’ve seen them—ad after ad for credit cards touting cash-back rewards, airline miles, and reward points. Does it leave you looking at your current credit card and thinking about trading it in for a newer, “rewardier” model? Before turning your back on old faithful and signing up for those rewards, consider these factors.
Annual Percentage Rate (APR). Check to see what the APR is on a rewards card. Many times it’s higher than other cards because the credit card company has to afford giving away these perks. If you don’t pay your entire card balance each month, you’re paying bigger bucks. Additionally, check to see if it’s a fixed or adjustable rate. Adjustable rates fluctuate with the market, so if you’re not paying off your entire balance each month, you can’t adequately budget your monthly payment. Whether picking a rewards card or not, you’ll want a card with a low fixed rate.
Annual Fee. Not all of them do, but there are some reward credit cards that will charge annual fees. These can sometimes be in the ballpark of $200-$300. If you aren’t one to use your credit card regularly, this fee probably isn’t worth it.
Overspending. “I don’t really need that new outfit/tool/electronic device, but I’m so close to getting those airline miles.” Sound familiar? Seeing that reward at the end of the tunnel can sometimes prompt us to spend more money than we would have otherwise.
Restrictions. This is where you must be diligent in reading your credit card disclosures. You may be required to spend a minimum amount in order to start racking up reward points. Conversely, you might only be allowed to earn points/miles/cash up to a certain amount. There can also be restrictions on what purchases can earn points and/or what those points can be used for. Additionally, some points may expire if not redeemed in a certain amount of time.
We get it; the message of a steady, reliable credit card with no hidden fees and a low APR isn’t as appealing as the beautiful celebrity telling you about exotic locations you can visit. But do yourself a favor—look at your spending habits, read the fine print, and choose a card that fits your lifestyle. That might mean a rewards card. However, maybe old faithful is actually more rewarding in the long haul.