5 Pitfalls of Reward Credit Cards

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The promise of “free” airline miles, nights in a hotel or cash back can make signing up for a new rewards credit card sound like a good idea. But if you’re not careful, those rewards could turn into penalties and punishments in a hurry.

Here’s a look at how to sidestep rewards cards snafus.

Spending just to be rewarded

The quest to rack up as many miles, cash back points and other rewards can lead to overspending, if you’re not careful. And if you can’t pay off the entire balance when the statement shows up, it’s best to not plunge deep into debt while in pursuit of reward points because you’ll pay more in interest for the “free” plane ticket than if you plunked down the cash out-of-pocket.

Rotating categories

Some credit cards offer five percent cash back for purchases in bonus categories that change each quarter, subject to activating the bonus categories and maximum quarterly spend in combined purchases, which is a great way to earn extra cash back. But to earn the rewards, cards with rotating categories usually require cardholders to activate the program every three months. If you’re interested in this type of card you may want to take a look at Chase Freedom®. However if you’re too busy to remember to go online, phone, text or email your card issuer every three months this type of card may not be a fit for you.

Cash back could drop off

Some credit cards offer a high percent on cash back, such as three percent, but after you reach a certain amount in annual purchases, the rate drops down to around 1 percent. The best way to get the most bang for your reward buck is reading every inch of that pesky credit card agreement. That’s the only way to understand how the program works so you can choose the right rewards cards to earn the biggest reward.

The reward doesn’t apply to you

It’s great to collect oodles of flyer miles. But if you’re a homebody who doesn’t like to travel or fly, you’re wasting your time swiping a card that offers airline rewards. And risking racking up lots of debt of a card that offers rewards you’ll never use. A good rule of thumb: If the rewards being offered aren’t tailored to your spending habits and needs, the card doesn’t deserve real estate in your wallet.

Rewards can vanish

That fine print comes in handy to understand limits on the rewards, too. That’s because many cards carry clauses that trigger the forfeiture of your rewards if your account has been inactive for 12 months or if you’re very late on a payment. Some rewards have “use them or lose them” expiration dates, too.

No matter what reward card you’re eyeing, the most important thing to remember is no one card fits all. And choosing the wrong one could trigger a mountain of debt or headaches.


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Published February 27, 2013
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