Are Credit Card Rewards Worth the Risk?
LOGAN, UT – A consumer recently reviewed his financial records and noticed something intriguing.
During the month of July, he had $1,623 in short-term savings certificates that earned
him a total of 76 cents for the month. Also for July, he used a credit card to pay
for $1,592 of budgeted expenses from which he received $48.03 in cash-back rewards.
He earned 63 times more on money he spent than on the money he saved.
In this era of tough economic conditions, almost any positive statement about using
credit cards is met with a chorus of negatives. Admittedly, there is ample evidence
of consumers who face dire financial challenges resulting from credit card misuse.
But, at the same time, most reports show that around 50 percent of card holders pay
their balance in full each month.
If a consumer has a solid history of successful credit card use, why not take advantage
of the perks? A woman shares a credit card with her sister in order to maximize the
dollar volume of purchases that convert to free airline travel for them. A man uses
a card issued by a sporting goods store so all his purchases earn a reward that he
can use for his favorite pastime.
Some consumers carry two cards that each offer basic cash-back awards for all purchases.
Additionally, each quarter card users can sign up for rotating bonus rewards in certain
purchasing categories such as drug stores, movies or gas stations. If you strategize,
you can work it so the categories don’t always match. For example, from April through
June, you can get an extra bonus buying groceries with one card, then switch to the
other card to get similar bonus money for grocery purchases from July through September.
One consumer uses two cards, one for the bulk of his purchases and the other as a
backup or secondary card. He recently received an offer from the secondary card issuer
promising a $500 cash-back reward for making at least $2,000 in purchases each month
for five months in a row. This reward was in addition to any other rewards he could
earn using the card. So he switched from what was his primary card to his backup card
for all his purchases and now figures to earn about 6 percent on the money he spends
via credit cards in the upcoming months.
Consider these guidelines on credit card rewards to maximize their benefits.
• If you are not comfortable with credit cards, don’t start using them for the potential
rewards. It is not worth the risk.
• Check the rewards program of the cards you currently use. One woman did not sign
up for the bonus rewards her card offered and found she missed out on about $100 a
• If you are choosing a card rewards program, match it to your interests. A card offering
airline miles doesn’t provide much if the user doesn’t travel.
• Use your rewards card for as much buying and bill paying as you can in order to
maximize your reward. However, if there is a fee to use a credit card to pay the
bill, don’t do it. The reward is not worth it.
• Always be mindful of the temptation to use the card too much. In the very first
paragraph talking about credit card use, it said, “budgeted expenses.” Never charge
something if you wouldn’t pay cash for the item.
• Be careful as you redeem your rewards. Some rewards have expiration dates. Don’t
lose the rewards you have earned. Other cards allow their rewards to be received as,
for example, $20 cash or $25 as a gift card to a specific store. That’s great if it’s
a vendor you normally use. If not, you may be spending your reward money on something
other than what is most important to you.
If credit card use is a comfortable part of your financial management routine, take
advantage of rewards programs. It can be worth several hundred dollars in cash or
products. If credit cards are a worry for your family, do not use them. The rewards
money is not worth the anxiety and risk.
By: Dean Miner - Nov. 7, 2012