Author: Holly Johnson / Source: Wise Bread
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Please visit our Advertiser Disclosure to view our partners, and for additional details.Rewards credit cards offer an alluring proposition — the promise of free points and miles for each dollar you spend. Many rewards cards even offer signup bonuses worth $500 or more right out of the gate, and that’s in addition to the rewards you earn when you shop or pay bills.
The problem? Not everyone can or should pursue rewards, for several reasons. In some cases, trying to earn rewards can even wreck your finances, damage your credit score, or both.
Before you sign up for a cash back credit card or travel credit card, it’s crucial to know the many ways pursuing points and miles can hurt you.
1. Going into debt by chasing rewards
A recent analysis of credit card data from the Federal Reserve from Experian revealed that only 45 percent of Americans with credit cards are paying their balances in full each month. This means the other 55 percent carry a balance at least part of the time, and it’s easy to assume at least some of those people are pursuing rewards, right?
Because the average credit card now comes with an APR over 17 percent, this is a real problem. It makes almost no sense to try to earn 1 to 3 percent back while also paying over 17 percent in interest. The math just isn’t there.
If you’re charging purchases you can’t afford to pay off each month just for the rewards, credit card rewards are not for you. You’ll be much better off using cash or debit instead since those options won’t leave you grappling with high-interest debt. (See also: The 5 Biggest Dangers of Credit Card Debt)
2. Overspending to earn a signup bonus
Most cash back and travel rewards credit cards offer initial welcome bonuses to entice you to sign up. Many times, these bonuses are worth $500 or more in points or miles, and all you are required to do is meet a minimum spending requirement (e.g. spend $3,000 within three months of opening the account to earn 50,000 bonus points).
While these offers are tempting, they…
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