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Research: Credit card rewards and how they could mess up your finances -

Credit card rewards need not necessarily be rewarding at all times. In fact, some credit card rewards could be dubbed anything but a reward. Some of them are strategies devised by sales and marketing teams to get more customers to spend on credit cards thereby profiting the companies. Although some rewards help the customers save money, not all rewards are really useful. Hence credit card holders should be able to distinguish between credit cards that they can benefit from and rewards that they cannot benefit from. Here are some credit card rewards that could burn a hole in your pocket, without your noticing it.

Milestone expense discount cards

Credit card rewards that offer massive discounts for milestone expenses can be notorious in messing your finances if not managed properly. For example, you might head to a store to purchase one shirt. If your credit card, offers you a 25% discount for $100 purchase, you might be tempted to purchase 2 or even 3 shirts to reach that target and get the discount. In spite of the discount, the credit card has still led you to spend 2 – 3 times of what you had planned for. A lot of credit card customers are oblivious to this seemingly obvious ploy and end up spending large amounts of money on shopping, satisfying themselves with discounts that aren’t really of much use.

Reward points

Usually credit cards offer reward points for expenses varying from 1 point per dollar spent to 5 points in some cases. These points can be redeemed later as discounts. Customers tend to spend more to garner more points. However, at the end of the day, there is a cap on the number of points that you are allowed to redeem in a month or in a year. A lot of points usually expire even before you choose to redeem them. If you want to redeem your points, you might end up purchasing something that you wouldn’t need immediately. In fact, in some cases, reward points can only be redeemed as discounts for fixed limit purchases. These rewards therefore end up increasing your outstanding debt significantly. Moreover, you might also pay an added interest on the debt, if you cannot repay it on time, thus affecting your credit history to a great extent.

Air miles

Credit cards that offer air miles, which can be redeemed as discounts on air travel tickets are very popular. However, very few card holders realize that frequent flyer credit cards, like frequent shopper credit cards, could be detrimental to their finances. For example, credit cards that offer travel benefits could have a high annual fee. A hefty fee of over $100 could be more than what you would have saved through discounts, thus adding to your outstanding debt. Moreover, air mile discounts are not available on all days and from time to time, you might have to compromise on the dates as well as the minimum distance limits, thus adding to your costs.