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Finance

Basing Your Credit Card Choice Around Points May Be Missing The Point


What sounds as good as getting something for nothing? The problem with credit cards is that there are barely any rewards for using them, which is why credit lenders got smart and started giving their customers something they call “rewards” for using a card. A strange concept to grasp, technically, the reward is that you continue to use their card, and they gain your loyalty, but how much of it is really rewarding to the consumer?

Many people use the reward system of a card to determine which they want to use. Travelers try to find cards that give rewards in the form of airline miles, while outdoor enthusiasts choose cards that will give them breaks at their favorite outdoor retail outlet. The truth is, however, if you are making the choice about which credit card to use based on the things you think you are getting back, you may be making a big mistake.

A recent study examined how many people who use specific credit cards because they want travel rewards, actually use them. What it found may have you thinking twice about the point of reward points. Studies indicate that although Americans insist that they use specific credit cards to gain reward points, they rarely bring them with when traveling or cash them in at all.

Making matters worse, many Americans admit that they actually use their cards often to gain the rewards and then end up paying more in interest charges on their revolving debt without ever using any of the points earned. Only 15 percent of those surveyed said that they had used the points earned from their credit cards to pay for a vacation, and instead end up using valuable rrsp rates funds. That is not only paid in full but even used their points toward any part of their destination.

Adding insult to injury, they also admitted that instead of using the points to save any money, once they used the card to take their vacation, 14% said that the money they racked up while traveling on vacation couldn’t be afforded when they returned. That led to high finance charges and accumulating revolving debt.

The allure of gaining travel points is causing people to lose common sense. Those who are looking for free vacations are taking out credit cards that they don’t need and then maxing them out, or paying for more expensive means of transportation to get to their travel destination to gain more points on their travel cards. The entire thing seems to be self-defeating even for the smartest of financier when it comes to credit card rewards.

Only one in one hundred people who use credit cards for getting away on a wild vacation has actually used those points to pay for the entire trip. Likely, they are the ones who pay very close attention to the rewards, how to redeem them, and are tight with their overall finances.

It isn’t just the rewards for travel. Many take out other credit cards thinking that they are earning points toward purchases only to find that the points that they have to earn well exceed any sensical price that you would pay out of pocket for whatever the credit card holder “earned”. When you begin to add up all the money spent getting points in interest payments, late payments, and other unnecessary overages, it is rarely the case that any rewards are coming from credit cards.

Some cards will give you cash back bonuses. Again, by the time you get any cash in return, it is typically not enough to pay the minimum balance for the revolving credit that you have on the card. A great marketing scheme, not many credit card users are thinking about the end game. Credit card companies have made a scenario, whereby, they have programmed people to use their cards whether they can afford to or not thinking that the more they spend, the more they will get “rewarded”, but that is simply not what the statistics are showing.

If you really want to reward yourself, pay cash. That way you know that there is never going to be a charge for using cold hard cash. When using available cash, you never have to worry about a finance charge, late fees, or overextending yourself into debt in an attempt to get something for free. A great mind trick, rewards are anything but rewarding to the average American.