Why Rewards Cards May Not Be The Best Decision

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credit cards on computer keyboard , concept for internet shopping

   

Before opening a rewards credit card, it is critical to compare the details with all available options. You need to do research independent of the creditor and through a variety of reputable sources. Don’t rely on the information provided through the issuer alone – get the full picture from third party sources. Use comparison applications to your advantage (Quizzle offers a very convenient comparison tool).

Most importantly, seriously contemplate the benefits of rewards cards over not opening another line of credit. An additional credit line is only as valuable and useful as how it is handled.

“It’s easy to spend money without a plan when you use a credit card,” according to Money Expert, Miranda Marquit. “Because you don’t have to worry about draining a checking account, it can be tempting to not worry about keeping track of your spending.”

The best rewards cards

Responsible credit management can bolster your credit report, and rewards cards can be an excellent incentive for individuals who already know how to cultivate credit. However, opening a line of credit just for the purpose of receiving the rewards can lead to mismanagement and ultimately be detrimental to your credit report.

Why Rewards Cards Are Different: The Hook, Line And Potential Sinker

The appeal of rewards cards is that for the money spent you can rack up points, which in turn can be used for various bonuses – from money back to travel discounts to “prizes.” In this way, it’s like a game.

There’s your hook.

And, therein lies the obstacle for many people. When a game-like attitude (the hook) is attached to financial decisions, prudent behavior is often lightly nudged out of the way (the line), leaving room for riskier behaviors (the sinker).

The 4 best credit cards for travel rewards

In order to sidestep being controlled by your card, the strategy must shift from gaining rewards to efficient use. Ask yourself: What makes the line of credit worth having open?

“You should also consider how many rewards you are likely to earn in a year from regular purchases you make,” Marquit advised.

“With the right strategy, your rewards can […] help you come out ahead.” It all comes down to effective and efficient use.

Should All Rewards Cards Be Avoided? Absolutely Not!

A wise piece of advice: Never apply for an additional credit card solely based on the rewards.

Always keep in mind credit is a vehicle that allows you to illustrate your creditworthiness; if opening another line will not assist in that ultimate goal, seriously consider avoiding filling out that application.

That being said, if you know how to manage credit and understand credit cards are just avenues of paying for things already within your means (and not sources of additional funds to pay for items in excess of your budget), a rewards card can literally be rather rewarding.

Do you really save money when using retail rewards cards?

The Bottom Line

As with all financial decisions, understand the gravity of the situation and the implications of engaging in a contractual agreement. Never sign something you do not understand and never agree to opening a  line of credit you cannot maintain.

When in doubt, do your research. Talk to a financial advisor. And remember: Ignorance is no excuse for money mismanagement. It’s ultimately your responsibility to take control over your financial portrait. Act today.

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By Quizzle. Helping You Make Better Financial Decisions.