Understanding Reward Card Traps

Perhaps the biggest trap you can easily fall into when blindly going after the best credit card deals are the rewards attached to the cards. Studies show that many consumers use reward cards more than a non-reward types. So even if you continuously pay off the balance in full every month but if you habitually use reward card extravagantly, you may quickly find yourself in a big trouble. Rewards are the likely reasons why you could feel an overpowering urge to overspend and become very addicted. The more you use it, the bigger the rebate. Watch out for this symptom, especially if the issuer tries to egg you on spending more with what experts call as “purchase acceleration.”

If you are drawing close a reward threshold, the issuer may send you an encouragement letter urging you to spend a whole lot more. It is a way for card companies to remind the customers that they are getting really close to cashing in, which help financial organizations develop loyalty programs.

Card companies also know that consumers may spend more after getting the first reward. If you receive an airline ticket free of charge, for example, you are more likely use the card more on other trip costs (accommodation, souvenirs, meals, and so on).

To avoid unnecessary urge, rigorously adhere to your weekly or monthly budget, creating a basic budget is usually quite simple. Just make a straightforward list of your planned monthly expenses items on a piece of paper or word processing software.

If you're using a reward card, bear in mind that your current annual income can cope with your spending level. Some credit card rewards have reduced rebates if consumers don’t reach certain annual spending thresholds.

When calculating your spending level for a given year, refer to the previous year’s card statement and the total amount spent. If you don't have a credit card, you may get a clearer picture of your monthly spending level by figuring out what's left on your savings account.

If checks are the main form of payment, examine your check register. By the same measure, most cards need a number of points before they can be redeemed. And a few cards promise larger rebates if you have bigger reward points and you shouldn't cash in at low redemption level.

Some issuers will agree to give you $100 check once you have earned $100 in rewards. Sometimes, for an added incentive, for $250 in rewards, you can get $300 cash back. You may earn an even bigger cash-back at certain reward points!

Understanding how many points are needed for the rewards and how much money you need to spend to reach a certain reward point level, is essential if you seek to get the most out of your reward card. Watch carefully for offers like this and it is also an evidence of how badly card companies want to stay in business.