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6 Ways Chasing Credit Card Rewards Can Backfire

Jason Steele

There is a lot to like about credit card rewards. Cardholders can earn valuable points, miles and cash back just for spending money on things that they would normally buy.

But at the same time, the temptation of rewards can lead cardholders to make unwise decisions that will ultimately cost them more money than any rewards earned were worth. Here are six situations when chasing credit card rewards can lead you down a bad path.

1. Going Into Debt

The most valuable rewards offered might be worth about 5% of the amount spent (here are some of the best rewards credit cards out there). But even when you can earn those rate of returns, you are wasting 95% of your money if the purchases you make are wasteful. This might seem clear, but card issuers know that some of their customers have rewards on their mind when they use their credit card, and this can entice people to overspend, either consciously or not. Overspending and getting yourself into debt can have a significant impact on your credit scores. You can see how your debt is impacting your credit scores for free on Credit.com.

2. Overspending to Earn a Sign-Up Bonus 

Credit card sign-up bonuses can be incredibly generous offers to earn hundred of dollars worth of points, miles or cash back. Nevertheless, these offers usually require cardholders to reach a minimum spending threshold within a limited time period. So when a cardholder has to spend thousands of dollars in order to earn their bonus of points or miles, it can lead them to make unnecessary purchases. And just as before, the points or miles earned are rarely, if ever, worth it if cardholders spend hundreds or even thousands of dollars unnecessarily.

3. Using a Rewards Credit Card When You Already Have Credit Card Debt 

If you have credit card debt, like roughly half of all Americans, then you should not be shopping around for a rewards credit card. That's because rewards cards almost always have higher interest rates than comparable, non-rewards credit cards. The additional interest charges you incur will typically cost more than any rewards you are earning. In addition, being rewarded for spending more money is probably the last thing that you need if you are having problems managing the credit card debt you already have.

4. Having to Overspend to Redeem Rewards

Even when you are successful at earning rewards without incurring debt, there can be additional costs to redeem rewards. For example, airline credit card users who have accumulated plenty of miles may want to redeem them for a flight to take a nice vacation. But just having a free flight does not mean that the vacation itself will be affordable. Credit card users will still end up paying for hotels, car rentals, food and tourist attractions on a typical vacation, and the airfare costs might have only been a fraction of the total expenses. In other situations, those who are redeeming airline miles may still have to pay fuel surcharges imposed by some foreign carriers, which can add up to more than $1,000 in some cases for an award ticket.

5. Missing Out on Other Perks

Rewards cards have great perks associated with them, but there are also other benefits that rewards cards may not offer. For example, cards with the most competitive offers for interest-free promotional financing are not typically rewards cards. For example, Chase Slate features 15 months of interest-free financing on new purchases and balance transfers, and is the only such offer with no balance transfer fee. Unfortunately, this card does not offer any rewards. Other non-rewards cards may be offered by the bank or credit union where you have a checking or savings account, which can be very convenient.

6. Paying Too Much in Annual Fees

Rewards credit cards can charge considerable annual fees, up to $450 in some cases. In many cases, these fees can be worth it, but for other cardholders it is a waste of money. Credit card users who continue to pay these fees out of habit, without considering the value of the benefits they receive from these cards, are often receiving poor value.

Note: It's important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

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