Rarely a day passes for most consumers that they don’t see an advertisement for credit cards that come with “rewards” of some kind, from cash back to travel perks and more. These ads always look and sound great, but the reality behind credit card rewards is sometimes much different than the truth. Today’s blog is going to look at credit card rewards and separate fact from fiction. Enjoy.
Fiction: It’s easy to redeem credit card reward points
While the actors in credit card ads will tell you that redeeming your rewards points is easy, it’s definitely not. Redeeming airline miles, for example, can be exceedingly difficult and, even if you do get a “free” flight, you can bet that it won’t be on the exact days that you want and you’ll have multiple layovers and awful departure and arrival times to deal with. The same goes with any other rewards for perks that your credit card might promise to give you. The fact is, getting rewards and points is relatively easy, but redeeming them can sometimes be incredibly difficult.
Fact: Applying for a rewards card occasionally will not hurt your credit
Many consumers believe that having too many credit cards can damage or even ruin their credit, but that’s just not true. In fact, if you apply for a new rewards credit card occasionally, use it sparingly and pay it off on time, you will actually build credit and create a credit history that can be used in the future for getting great rates on things like mortgages and car loans. Since only 10% of your credit score is made up by “new credit”, it’s fiction to think that opening up a new credit card account once in a while will significantly damage your credit.
Fiction: When you redeem your rewards points, your rewards are free
Okay, so let’s say that you have enough frequent flyer miles to take a trip to Europe. If you believe that your flight is going to be 100% completely free, you’re dead wrong. You will still have to pay for things like airport taxes, fuel surcharges and, on many airlines, baggage fees as well. European trip that can easily run into the hundreds of dollars. The same thing goes for getting a free night or two at a hotel. Hotel taxes, food and sometimes even things like Wi-Fi are extra, not free. The fact is, while you might save a significant amount of money, you won’t get everything for free no matter how many points or rewards you have.
Fact: If you do it correctly, it is worth the effort to get credit card rewards
You might think, after reading some of the facts above, that it’s not worth the effort to try and get credit card points or rewards. The fact is, if you do it the right way, it is most definitely worthwhile. For example, even if you have a simple cash back credit card that gives you 1 or 2% on everything you spend, that can add up to a significant amount of money by the end of the year. A family that does it right can save thousands of dollars a year with rewards cards.
The caveat here, and it’s a big one, is that you have to pay your bills off completely, and on time, every month.
If you don’t, the interest that you’ll pay will negate any cash back that you might accrue, and may very well cost you much more money than you earn. In simple terms, getting 1or 2% back, or a few thousand frequent flyer miles, in no way, shape or form makes up for paying 18, 19, or 20% (or more) in interest every month on the money you spent but didn’t pay off in full.
The fact is, there are two kinds of consumers when it comes to credit card rewards The first kind are those that use rewards card incorrectly and end up with very few (if any) rewards. The 2nd, better kind know exactly how to use rewards credit cards, know what their limits are and know how to get the most rewards, miles and perks out of them as possible.