Understanding Credit Card Rewards

Developing good spending habits and learning new ways to manage your money are important parts of overcoming debt. While looking for new ways to approach spending, you may be tempted by credit card rewards. Let’s find out if these cards are worth it in the long run. (Spoiler alert: they aren’t.)

No Credit is Good When You Are in Debt

At CreditGUARD we hold true to one simple truth: You cannot get out of debt by going further into debt.

While this may sound straightforward and obvious, unfortunately, the credit industry will do anything and everything to keep you from buying into this fact.

Whether it’s paying off one creditor by accepting credit from another or offering incentives and rewards to start using a card you have no need for, they all have the same goal, and that is to keep you spending.

Rewards Points Mean Spending and More Debt

Credit card rewards exist for a twofold purpose. One is simple: to keep you spending, so you keep earning those “rewards.” These can come in the form of points, cash back, or miles.

But at what cost? That’s where things get a little trickier.

When you look at your monthly statement, instead of feeling good about the total debt owed getting smaller, your emotions get reversed. Instead of feeling proud of yourself for sticking to your budgeting goals, you are happy to see your monthly rewards total has gone up.

This means you spent more money and have taken on more unsustainable debt, but think of the rewards!

It would be a lot more difficult to feel good about this if it were referred to as “taking on more debt” instead of “earning rewards.”

That simple change in phrasing makes a world of difference when thinking of your future finances.

Are They Really Worth It?

In most cases it turns out the rewards themselves aren’t all they are advertised to be. In the case of reward miles, the blackout restrictions make them unpleasant and difficult to use. And by the time you earn enough of your reward to go somewhere, you will have already spent more than the ticket is worth in fees and unnecessary credit debt. You would be better off budgeting strictly and saving for the airfare on your own.

If you have a credit card that does not charge a fee, gives cash rewards – and you pay off your cards in full every month – then using your card to get cashback is okay.

Beware of Hidden Costs

But what about cash back? That has to be good, right?

Not always. Whether it’s shifting you to a higher interest rate after an introductory period or charging excessive annual fees for the “privilege” of using the card, the advantage will always be on the side of the creditor and not you as the consumer. The credit card company doesn’t lose money letting you rack up free airline miles you can hardly ever use. But you lose by building more and more debt to earn the rewards.

At CreditGUARD we believe that by building financial education and practicing good spending habits (instead of building mountains of credit debts for elusive rewards), you can pull yourself out of credit debt today. Give us a call to find how CreditGUARD can help you. If you’re struggling to make your payments, talk to one of our certified credit counselors about our nonprofit debt management program.