Welcome to the 11th Smart Money Debate at ReadyForZero! To see the other side of this debate, read Andrea’s post: Why You Should Open a Credit Card for the Rewards. And then let us know which argument was more convincing!
This is a guest post by Tahnya Kristina, a financial professional and a personal finance blogger at My Diary Entry. Her new book “A Better You” is now available on Amazon Kindle. You can follow her on Twitter @TKBlogs.
It’s the time of the year when we are all trying to pay off our debts from our pre and post Christmas shopping. It’s the time of the year when every store is having a sale and this includes financial institutions. Many banks are currently offering 0% interest balance transfers and one time sign up bonus rewards points to try and entice consumers to sign up for their newest credit card. But before you sign that credit card application and get your bonus rewards points you have to ask yourself – do I really need another credit card?
Most likely the answer is “No.” Unless you are a teenager and you are applying for your first credit card you most likely do not need another credit card in your wallet. Credit cards (more than one) do not help your credit score or your net worth; actually credit cards harm your credit score and your net worth more than they help them. Many people feel that if they have a lot of credit cards with high limits it makes them more financially worthy but this is just not true.
Don’t be tempted to use your credit card for the rewards
Credit cards are not always bad because if you use them responsibly by spending within your limits and always paying off the balance each month they can be very rewarding. However credit cards can also be a source of temptation that can lead to over spending and unnecessary debt accumulation. Before you charge a purchase on your credit card just to get rewards points, you have to ask yourself – would I still make this purchase if the rewards points were not an added perk?
Once again the answer is probably “No.” If you have one credit card you should use it only when needed. Don’t overspend and make unnecessary purchases on your credit cards just to get bonus rewards points; you should consider the rewards points to be an added bonus and not the reason why you are making the purchase.
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Make sure the credit card rewards are worth the cost
Credit cards rewards points can definitely be a temptation to spend and a reason why people sign up and apply for credit cards, but you have to remember that rewards points are usually a onetime bonus. Credit cards that offer rewards points usually come with an annual credit card fee. If you are going to pay an annual fee for a credit card that offers rewards points you have to make sure that the annual fee is worth the rewards benefit.
The bottom line is: Don’t get caught up in chasing rewards points and get taken down the path to being in debt. Avoid rewards cards unless you know that the temptation will not be a problem for you.
Do you have a rewards credit card? Does it help or hurt your finances?
To see the other side of this debate, read Andrea’s post: Why You Should Open a Credit Card for the Rewards. And then let us know which argument was more convincing!
Image credit: alkir