If you are like many consumers, you know at least a couple of people who have funded luxurious vacations or made other large purchases entirely using credit card rewards. However, there are millions of other consumers who have struggled with high debt balances on credit card accounts. This begs the question of whether trying to maximize rewards points on credit cards is a smart idea or if it simply leads to consumer debt. Analyzing the financial expenses and benefits of credit card usage can tell you more.
Understanding Credit Card Costs
In order to determine if credit card rewards programs are worthwhile, you need to first understand what the costs of these programs are. The interest rate on your credit card is the primary cost associated with using credit cards, but it only applies if you do not pay the balance off in full each month. Unfortunately, many consumers carry over a balance from month to month, so interest charges are a legitimate and rather high expense associated with credit card usage. Late fees and general account fees are also common and should be taken into consideration. For example, some credit cards have a large annual fee that is required regardless of whether you have a balance or not.
Examining the Benefits
Now that you have a reasonable estimate of the cost of using credit cards, you must examine the benefits of a rewards program. Each rewards program is different, so it may be necessary to analyze each specific program available to you individually. For example, some programs limit the number of points that you can earn, or they may require you to use the points within a specific period of time. Other programs have unlimited points and no usage requirements. Therefore, you may continue to accrue points until you have saved enough points to make the desired purchase. When you are required to use points by a specific date, you may be required to purchase something undesirable rather than something that you are truly interested in owning or using.
You can see that each situation with rewards programs is different based on the consumer’s usage of the account and the specific terms on the account and the rewards program. Consumers who are interested in maxing out the benefits of a rewards program should spend time shopping for the right credit card and should take every step possible to use their credit card account responsibly, so that usage expenses are minimized.
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