In late 2007 my husband decided to apply for a credit card to jump-start his credit. We did our research and chose the card he would apply for carefully, and were excited when he was approved. We were even more excited to learn he could build up reward points to spend at one of his favorite sporting goods stores. However, we landed ourselves in financial hot water trying to build up those reward points. This is how reward points got us into a financial bind, what we are doing to get ourselves out, and how we are preventing it from happening again.
How we got ourselves in a financial bind
After receiving my husband's MasterCard in the mail, we learned that he would earn a 1% bonus (e.g. $1 earned per $100 spent) on items purchased at non-affiliated stores and 4% on purchases made in-store. The idea of earning in-store credits to make everyday purchases was very appealing, so we did just that. We began buying things like groceries and gasoline to get the rewards, but got into trouble when the economy crashed in 2008. Over the next year my husband faced multiple temporary layoffs, and we went from paying the balance off every month to racking up interest charges. We ended up nearly $3000 in debt by the end of 2009.
How we plan to get out of debt
Since 2009 we have been making our minimum monthly payment plus paying a little extra each month. Paying extra has reduced our balance to about $2000, and we plan to continue paying a little more each month until February when we will use our tax refund to pay off the remaining balance.
How we plan prevent it from happening again
Now that we know the risk of carrying a credit card balance far outweighs any possible benefit, we are retiring the card. We will not close the account to avoid any potential negative effects it could have on his credit score; however, the card will be locked in a safe where it will stay unless and/or until we face an emergency. Then, and only then will we even consider using it again.
Credit card companies use many different tactics to hook you in, and if you aren't careful you will fall for one of their ploys, too. We've learned a valuable and costly lesson about credit card rewards that we will carry with us throughout the rest of our lives to keep us from repeating it.
*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.More from this contributor: First Person: I Overhaul Our Budget Every Month