Credit, credit, and more credit. With all of the many credit cards on the market, knowing which one to choose can sometimes be a challenging endeavour. From low interest to points credit cards, knowing your personal spending behaviour as well as the ins and outs of each credit card type is extremely important.
Focusing today on rewards cards – knowing when it is ideal to use a rewards credit card to pay for purchases is key to your success as an effective credit card borrower. Let’s take a look at both sides of the story and learn a bit more about how to get the most out of your rewards card . . . as well as when you may want to avoid relying on it as a go-to payment method.
Annual Fee versus Rewards
This first scenario has to do with looking at the cost of the annual fees attached to many of these rewards cards. With a high annual fee sometimes as high as $195, this can initially seem like it will be extremely expensive card to take on. On the other hand, if you have a look at the rewards you can receive from a particular card, this can offset the demanding annual fee. For example, some rewards travel cards can allow you to reduce your travel expenses, and in other cases you can receive cash back with cards and even earn points to pay for groceries and household items you may need to buy anyways. These costs will far outweigh the $195 annual fee in many cases – and therefore it does seem to balance out when all is said and done.
From this perspective, using your rewards cards can be a great benefit to your life, despite having to pay a higher annual fee. If, however the rewards the card you are considering does offer benefits that will actually be worth it – then opting not to use a rewards card may turn out to be the better choice for you.
Re-payment Behaviour: Paying off vs Carrying a Balance
Since rewards cards come with annual fees and may also have relatively high interest rates compared to other cards, this can mean that you will have to pay higher fees each month, as well as over time. As a card user, if you know you will not be in the position to pay off the total balance of your credit card each month, then using your rewards cards for paying for the bulk of your purchases may not be the best way to go, despite the rewards you can earn. If you think about it, when you can only pay off the minimum balance each month, you will be complying high interest charges as well as running the risk of growing your debt level.
Alternatively, if you are able to pay off your balance each and every month, you can benefit from the rewards, not have to deal with growing interest fees – and finally you are better equipped to keep your debt under control. Once again, using the rewards card with this repayment structure can allow you to take full advantage of the rewards offers, without having to compromise your other finances.
Taking Advantage of Rewards vs Overspending to Earn Rewards
Getting the most of your rewards card also depends on the nature of how you are spending your money. If you are using your card with purchases that are necessities or are purchases that are within reason, you can earn your rewards points as you spend within your means.
On the other hand, if you keep swiping your rewards card all the time for every little item you buy – this can lead to some major overspending. Trying to grow your rewards balance by any means can be an ineffectual use of your card – and what you may actually be doing is buying things you just don’t need for the sake of a higher rewards level. This can definitely become a bad habit over time – and what you are likely to find is that your debt will quickly get out of hand.
In the end, it is important to have a plan for what you will purchase using your rewards card. By being pragmatic about this, you can still earn lots of rewards points and prevent yourself from overspending. This is really a balancing act that you can maintain, which can encourage you to make the most out of this situation.
