So you’ve just got another one of the enticing offers in the mail. You know the kind. Zero percent APR for 12 months and ah yes, Rewards Points. Use your shinny new credit card at the pump or whenever you buy your favorite items online or in store and earn reward points. A lot of Americans are applying for credit cards everyday. It’s estimated that at least 46% of American household hold some form of unsecured debt. The average household has an average of $10,000 of credit card debt. That makes one thing readily apparent – credit card companies are making money hand over fist.
So why is it that people are flocking to get themselves more into debt? Well, it’s not all their own doing. Credit card companies and banks understand that Americans are consumers by habit. Not only are Americans consumers but Americans love getting rewarded for their actions. These two factors created the ingenious idea for reward credit cards. The concept is simple, the more you spend, the more you earn.
There are many different types of rewards as well. As they say, all rewards are not created equal. You have your travel rewards, points rewards and cash back rewards.
Travel Rewards – These cards earn you “miles” rather than “points”. As you purchase items, you accumulate miles on your card. After a certain amount of miles are accumulated, you can trade in those miles for actual plane tickets to your desired destination. Even if you don’t quite have enough miles to earn yourself a free trip, you can pay the difference in cash. The downside is that many of these travel reward cards have restrictions in what is known as “blackout” dates. These are typically during times of the year that the majority of people travel so you may not be able to cash in your miles for that holiday vacation you’re planning.
Point Rewards – These are the most common types of cards. The concept is that you earn points for every dollar you spend on your credit card. After you’ve accumulated a certain amount you can trade those points for items such as cloths, electronics and other items.
Cash Back – Probably the most desired type of reward card are cash back cards. Unlike the other two, you’re not held to restrictions or specific items. You actually get “cash” back in the form of a check that you can cash or deposit into your bank account. Because of the restrictions free nature of these types of cards, they usually offer the less amount (percentage wise) per dollar spent.
So before you go signing up for one of these types of reward cards, here are 5 things to consider:
1. Companies are cutting rewards all the time. Because of the rough economy, a lot of these credit card companies have cut back on the amount and percentage of rewards you earn. It is not like it was 8 or 9 years ago. Before you sign up for a new credit card, make sure that you understand the program and also the restrictions which can be significant. Basically, read the fine print.
2. You may be held to specific items. Unlike cash back cards, if you’re earning points, the items that you will be able to cash those points on are very specific. You may not like the name brand or you even be able to get the very same item cheaper on your own. You will not have the freedom to just get what you want with points.
3. You’re likely to get into more debt. While, reward credit cards are not necessarily a bad thing, getting into more unnecessary debt is. Unless you’re able to be disciplined about your spending, it may not be such a good idea to add extra enticement of getting rewards.
4. Reward cards mean higher interest rates. That is the hook with these reward cards, is they come at a price. If you keep high balances on your credit cards, these types of cards may not be very advisable. You need to be careful if you keep high balances you’re going to be paying dearly for those rewards.
5. Know what you’re signing up for. Like many other cards, reward cards usually come with an introductory interest free period. After the promotional period ends, you need to be aware of what the APR will be. Also, many people are not even aware of the reward perks that come with their credit card and therefore, many of these rewards go unclaimed by the card holders.
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