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Credit card companies are smooth and know exactly how to market to our wishes. They know we love our points, miles and rewards—the credit card incentive trifecta. And we’re falling for their offers blindly.
So before you sign up for another card just to get free airline miles, understand there are many reasons to run from the misleading credit card “reward” gimmicks. Here are just a few:
Confusing Credit Card Reward Systems
According to a recent survey by Nerdwallet, 73% of cardholders consider rewards to be one of the most important factors when choosing a credit card.(1) At the same time, nearly one-third of cardholders don’t really understand how to earn rewards, and one-fifth don’t grasp the dollar value of the rewards earned.(2) And what you don’t know as a cardholder can hurt you. For example:
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- Foreign transaction fees. Some cards will tack on a fee for every transaction abroad.
- The difference between miles, points and cash back. It sounds simple, until you read the fine print to understand all the nuances and qualifications of each reward.
- “Cash back.” This sneaky incentive sometimes comes in the form of statement credit—and not actual dollar bills.
Credit Card Annual Fees
A recent report by Nerdwallet showed that 30% of credit card users are confused by the fees.(3) With good reason! If you don’t understand how they work, annual fees can eat your credit card benefits for lunch. Let’s say your card offers airline miles and has an $80 annual fee. If you spend $8,000 on the card every year and pay it off each month, you’ll have accumulated enough to get the free ticket in three years. Three years! The only problem? By that time, you’ll have spent $240 in annual fees alone. Why not skip the credit card and buy a plane ticket straight up with the money you’d save on those fees?
Interest Rate Bait and Switch
Some credit card companies love to entice you with a low introductory interest rate. You take the bait and sign up for the card. Then bam—your interest rate jumps 10% or more! No thanks. Again, this is a credit card reward danger you’ll want to avoid.
According to data from the U.S. Census Bureau and the Federal Reserve, the average U.S. household has $15,654 in credit card debt!(4) Let’s say that’s your balance. If your interest rate is the common 18%, add $2,818 in interest. So, that $15,654 becomes over $18,000 in no time if you’re paying only monthly minimum payments. Low interest rates are too good to be true. Don’t fall for the old bait-and-switch routine!
Credit Card Expiration Dates
This is just another “gotcha” in the credit card world. Every card has its own set of expiration rules. Some points expire after 18 months, which is barely enough time to rack up a significant amount of rewards. But time isn’t a cardholder’s only enemy. The fine print will outline several ways your points could expire. Did you know you could lose all rewards if you miss one payment? Again, policies vary from card to card, but cardholders could forfeit all or some of their points for missed payments, card inactivity, or changes to the structure of the rewards program.
Credit Card Low Caps = High Risk
Low caps are another way credit card companies hook you in. They may promise you cash back, but they impose a limit on how much you can get. If they promise 1% cash back and have a $300 cap, then you’ll have to spend $30,000 to get $300. That’s too much effort for too little reward.
Think about this for a second. When you open up a credit card account, you’re likely to pay thousands of dollars in interest over the years as you carry a balance. Even if you promise to pay it off every month, all it takes is one lost or missed payment. If that happens, your interest rate skyrockets, your credit score drops, and you get slapped with fees. With just one mistake, you’ve gotten into a big money mess.
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Learn How to Manage Your Money Without Points, Rewards and Hassles
Look, people who are concerned about points, rewards and cash-back offers are obviously people who want to be smart with their money. So kudos to you! But there’s a better way to become money smart. If you invested the same amount of time and energy on creating solid, long-term spending habits as you do on calculating your rewards, you could build a lasting financial future that doesn’t include credit cards!
We know from 25 years of helping people with money that you can’t outsmart bad spending habits. However, we also know you can become money-smart and change your bad spending habits.
You just have to take the first step. And what’s the first step? Mustering up the courage and motivation to change. If you have the motivation, we can take you from debt-burdened to debt-free.
Are you ready to make a change? We’ll show you how through our most popular money class: Financial Peace University.