Guide To Avoid Downsides And Consume Benefits Of Credit Card Reward

In today's world, stores and banks bombard us with credit card deals that promise points and cash back. It's wise to be cautious. People often argue about whether credit card points or cash back are better. I've encountered this dilemma with clients more times than I'd like. Some say, “I use my credit cards because I get 5% cash back,” while others boast about the great points they earn. These benefits might look great at first glance, but there's usually more going on than meets the eye. Credit card companies are experts at luring us in with the chance for points and rewards, yet are these rewards really as simple as they seem? Rewards can trick you up with high interest rates, spending temptations, and complex ways to use your points. However, if you're smart about it, use your cards wisely, and understand all the rules, these same rewards can be like money in the bank. Let's take a good hard look at both the good and the bad in the world of credit card rewards.

Now, let's dig into why the appeal of credit card points and cash back may not always be in your best interest.

1. High-Interest Rates:

Credit cards that offer points or cash back often come with high-interest rates. The temptation of rewards can make consumers overlook the fact that if you don't pay off your balance every month, any gains from points or cash back could be wiped out by the interest charges. At the end of the day, what you shell out in interest might just tip the scales against any rewards you collect. Remember, the big draw of credit card rewards is frequently dimmed by steep interest rates. Imagine you've saved $500 in cash back during the year, but you also have a balance on your credit card that comes with a 20%+annual interest rate (APR). If you're not careful, the interest charges on what you owe can quickly exceed the cash back you’ve earned. This means the rewards you worked for may end up being worthless. Credit card companies love to tempt customers with rewards and then hit them with steep interest rates.

2. Overspending Temptation:

Credit card companies cleverly create reward programs that make you want to spend more. These are marketed at nauseating frequency. That tantalizing offer of points or cash back might push people to buy things they don't need. That kind of spending can lead to debt. It’s important to keep a cool head and not just spend for the sake of racking up rewards. Sure, 6% cash back sounds great, but that's really only 6 cents on the dollar – and if you consider most cards charge over a 20% interest rate for carried-over balances, it doesn't seem so great anymore. Spending more than necessary for points or cash back can wipe out your rewards gains pretty quick if you start paying interest on a bigger balance. Always think about whether the benefits are worth it before you give in to the temptation. Chasing points or cash back and ending up with stuff you didn’t actually need? That's right into the credit card company's trap.

3. Annual Fees:

Credit cards that promise great rewards often have yearly charges. It's important to figure out if the perks are worth these charges. If you don't spend enough to make up for the yearly fee, your returns on what you buy start to dwindle. Lots of credit cards with tempting reward programs charge you every year. The idea of earning points or cash back might look good, but you've got to check if the perks really beat the cost of these fees. Sometimes, what you pay each year can wipe out the rewards, especially if you don't use the card much. Imagine a card charges $200 yearly and gives you 2% cash back when you shop. You'd have to spend a whopping $10,000 just to cancel out that yearly fee. Spend less than that, and you’ll actually lose some of your 2% cash back. Oh, and if you're saying, “But my card gives me 5% back,” sure, but remember, that probably means an even higher yearly fee. They're not handing out cash for nothing—these are credit card companies. You really think they're not on top of their game? They study consumer behaviors and have really smart people figuring all this stuff out.

4. Impulse vs. Intentional Spending:

Credit card firms entice you to spend more by dishing out rewards, yet everything changes when you go overboard with your spending. It's tempting to make snap purchases when you're eyeing those rewards, but this can really put a dent in your wallet. Say you toss an extra 100 bucks at stuff you don't need, just to snag a bit of cash back. The hit on your bank account in the long run could be way more than what you get back with rewards. Making purchases just to grab points or cash, and then getting hit with interest on an increasing bill, will eat into your reward earnings. You've got to balance out the “perks” against the potential debt. Truth be told, lots of folks get caught up in buying on a whim just to rake in points. This can mess up your finances, because it means you're splurging without a solid budget or money plan in place. Dropping that extra $100 on stuff you really don't need for a bit of cash back might feel ok now, but over time, it can cancel out any rewards you've pocketed.

Sure, credit card perks like points and cash back have some downsides, but there are times when playing the rewards game can actually be of benefit for your money. Let's look at the other side and pinpoint the situations and habits that can make these rewards a real plus for your money moves.

1. Responsible Credit Card Use:

To really benefit from credit card rewards, you need to use your card wisely. That involves paying off what you owe every month, so you don't get hit with big interest. If you keep up with your payments, the perks you get from using the card are actual pluses and not hidden traps! Think about it this way: if you're using a credit card for what you could outright pay for with cash in hand, then you're not in debt. You have the money right there.

2. Smart Spending Habits:

Different cards give you extra points or cash back for certain types of purchases. To earn as many rewards as possible, match your card use to the things you buy often. Say a card gives more cash back on food and fuel, it's a no-brainer to swipe that gives you the highest reward when grocery shopping or filling up your tank. Remember, this only works when you know how much you are going to spend on these items because you have a regular track record of spending on these items, and you have the cash to pay it right off.

3. Getting the Most from Sign-Up Offers:

Lots of credit cards tempt you with bonuses just for signing up. Hitting the spending amount, they ask for to unlock additional bonuses can give your rewards a real boost. But don't let that bait make you spend more than you would otherwise—that's just playing yourself.

4. Making the Most of 0% APR Periods:

Some cards let you buy things without paying interest for a set time after you get the card. If you've got a big expense coming, like fixing up your place or buying something pricey, a 0% APR offer could be smart. Just be sure you already have the money saved, otherwise you’ll fall right into their trap. Remember, once the intro period ends, normal rates apply. The credit card companies have also studied this extensively, they have a pretty good idea of the percent of people who pay it off in time and who don’t.

Rewards like points or cash back are tempting, but it's best to tread carefully. Don't forget that stuff like high interest, the risk of buying more than needed, complicated terms, yearly charges, spur-of-the-moment buys, and limited ways to use your rewards can water down their value. Take a good look at how you spend and consider other ways to pay before jumping at these deals.

Use methods that match up with your goals.

When you take a closer look, the shiny appeal of credit card rewards often dulls a bit. This is due to hidden downsides like steep interest rates, tempting you to spend more, hefty yearly charges, the behavior of impulse purchases, complicated ways to cash in your points, and reward programs that keep changing. It's important to weigh the costs against the perks before you dive into swiping to reap those reward benefits to make sure they don't mess up your financial plans for the future.

Still, the perks of credit cards, like points and cashback, can be pretty handy if you handle them wisely and plan smartly. Being smart with your card spending, picking the best card for your needs, snatching up those sign-up offers, really getting how much those reward points are worth, and making use of those no-interest starting periods could help you nail it. With these tactics, there's a chance to turn reward points into a real bonus for your wallet. But let's be real—most probably don't get it right. Why do I think so? A certain CNBC report let the cat out of the bag. This comes at a time when Americans owe more than $1 trillion on credit cards, a record high, according to the Federal Reserve Bank of New York. Yes, that's a TRILLION with a “T”. Credit card companies are earning a lot of money using their tempting offers.
Credit card rewards can be helpful on your financial journey, but true financial success comes from aligning your behaviors, mindset, and habits with your goals. By prioritizing these aspects, you pave the way for lasting wealth and fulfillment. Engaging with a Financial Accountability Coach can guide you in this transformative journey.

If you’re wondering how to find the absolute best coach for yourself who has the experience and training to understand and evaluate your unique situation, and who fits all of the criteria we outlined in this article, check out The Accountable Network’s unique Coach-Match system! Book a FREE one-on-one call with an actual human being (not a Google Form or Bot!) who will learn all about you, your unique situation and the transformation you’re hoping for. They will then use that information to scan their network of 100+ coaches specializing in over 50 niches to find you the coach that is the best fit for YOU.

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About the Author

Connor Tyson (Owner/ Founder of Progress Solutions)

Hi, I’m Connor, I help people going through life transitions who feel they aren't where they should be in their personal finances, feel unsure or uneasy about their current situation get unstuck from their current situation by providing a simple and proven path forward, so they can move forward with confidence and change the trajectory of their financial futures and that of their families. 

• BS degree  - Finance, from Quinnipiac University, 1999
• Financial Advisor for over 20 years, Series 65, Registered Investment Advisor
• ChFC ® designation  - Chartered Financial Consultant