Many credit card companies boast the rewards customers can accumulate by making purchases using their credit card or through balance transfers.
From flight miles, to loyalty points, to gift vouchers, these reward systems are intended to entice customers to use credit more often and for larger purchase amounts.
Before transferring a credit card balance or opening a credit card for its reward points, consider the risks and benefits.
As with most forms of credit, if you carry a balance on your card, you will likely pay interest on what remains at the end of the month.
Be mindful of whether the rewards will outweigh the costs. For example, a card that offers 5% cash-back on purchases, but charges 15% interest on monthly balances, will not “earn” you money.
Additionally, most low introductory rates will increase after a set amount of time. Take time to read the fine print and weigh the cost of fees when considering credit card perks. Many companies will charge annual fees that may cost you more than you will be rewarded.
There are a few types of rewards that can be beneficial, especially if you can take advantage of them without carrying a balance on your card.
These rewards are generally based on how much you buy with the card.
Some rewards constantly accumulate, such as earning airline miles with a partnering airline. Others must be activated and redeemed during certain times of the year.
For example, you may get bonus points or additional cash-back for purchases at gas stations during the summer or at grocery stores during the fall. If you are a frequent traveler, or regularly buy from a retailer that offers loyalty discounts or cash-back on credit card purchases, there may be financial advantages to using credit.
When considering the details of the offer, be sure you clearly understand how to earn rewards and how to redeem them.
Some cards may have minimum thresholds you must meet before you can redeem rewards. Companies may also have expiration or “blackout” dates in place, so read the terms and conditions carefully so that you do not lose out on rewards.
The most important consideration for using a credit card to earn rewards is to make sure that you are purchasing within your financial means. Only charge what you know you can afford, and pay off the balance each month to avoid paying interest.