Credit Card Rewards Are Good Unless…

I often talk about credit cards on this site.  I talk about how keeping them open can help your credit score, but using them irresponsibly can lower it.  I also talk about reward programs.

There is another, generally more prominent issue with credit cards that I often assume you already know about, but seeing as most Americans have huge credit card debt, I wanted to dedicate a post to that issue.

First, here is why credit cards are good for many people.  Keeping the accounts open for a long time can increase your average account age.  That, combined with on time payments, is the easiest way to quickly establish a good credit score.

Rewards programs are another great benefit of credit cards.  I get 2% cash back using my primary card.  Other people get points and miles used for travel and hotels.  Others get discounts on frequent purchases.  The value of these rewards can add up quickly…

However (isn’t there always a however to spoil our fun), credit card rewards become a burden if you have to pay more than you get back.  The two causes of this symptom are self control and carrying balances.

Self control is a real problem for many people, particularly young people, with credit cards.  It can be so tempting to use that $1,000 open credit line to buy a giant TV or a trip to Costa Rica, but it is not a wise decision unless you have the cash to pay off that bill right away.

My credit card bill that I paid this morning in full would have taken 4 years and nearly $100 in interest had I only made minimum payments, and that balance is only about $600 that I spent on food and living expenses, not frivolous toys and trips.  The $100 in interest is much more than the $12 in rewards.

So, credit card rewards are good unless the cost of credit is higher than the rewards.  Be careful and vigilant to ensure you are not waisting more money than you get from your cards.