If you have a credit card or two, then you may already be aware of the credit card rewards game. It’s a program that gives points to anyone who has used or signed up for card membership. The points may be redeemed and exchanged for travel opportunities, gift cards or even cash.
However, as much as these credit card rewards programs are immensely alluring to the regular shoppers, they are something many financial experts advice against. Here’s why:
Signing up for credit cards only to chase after rewards will negatively impact credit scores.
Every time a consumer opens a card, his credit score already suffers a couple of points. And because credit bureaus calculate scores based on the amount of credit left available, closing a card immediately after having reaped the benefits will cause a dent on your credit score.
Chasing rewards may lead to bad purchase decisions and habits.
Credit lenders offer rewards for credit card purchases to incentivize spending, and consumers are obviously taking the bait. Rewards are so alluring, consumers tend to lose sight of whether or not a purchase is necessary. As a result, you end up buying things you normally wouldn’t.
How You Can Keep Your Spending In Check
When responsibly used, credit cards can actually be extremely valuable financial tools. They can provide you free income through travel or cash back rewards points. Just keep in mind that the key point here is “when responsibly used“.
Here’s a few rules that might help you in utilizing credit card rewards:
– Don’t use credit card rewards as excuses to spend money.
– Stick to your budget.
– Pay your dues in full on time.
– Never pay interest on any of your purchases.
If you are unable to do these things, then perhaps you might as well avoid credit card rewards programs altogether or they will cause your credit downfall.