One of the most popular ways in which credit card companies entice people to open an account is credit card rewards. While there are some exciting rewards offered (perks like cash back, free trips, and discounts on purchases), it is important to use credit cards responsibly, irrespective of the rewards offered.
If managed properly, credit cards can be a useful financial tool that come with the added benefit of rewards. If you want to get a rewards credit card, consider the following things:
Paying Off Your Cards Every Month
The rewards aren’t worth it if you don’t pay off your card in full on a monthly basis. For instance, you can earn between 1-5% cashback on a cashback card on each purchase you make.
If you have a 15% average APR on your credit card and are carrying over a balance, you’ll end up paying much more in interest than you are earning on your cashback reward. In such a situation, it would save you money if you pay for your purchases in cash, versus signing up for a credit card only for the cashback reward.
Your Annual Fee
The annual fee is another thing you must consider for having a credit card. It is recommended that you opt for one that has no annual fee. Before you sign up for a reward-based credit card, you should check if you’ll earn more in rewards than what you’re paying in the annual fee. Then, you should also compare this with cards that offer similar rewards and charge no fee to see what would work better for you.
Why Banks Offer Reward Credit Cards
Reward credit cards are used to make people put money on their credit cards and earn rewards. However, when people use their credit cards to make purchases, some of them tend to overspend, and reward cards help encourage people to spend more on their credit cards.
If you have a huge amount of debt on your credit card, you should stop putting things on your credit card till you’ve cleared your debt. Once the debt is paid off, you may consider using your card for rewards, as long as you can clear the balance in full every month.