Why You Should NOT Open a Credit Card for the Rewards

16 Jan 2013 by

Smart Money Debate - Why You Should Not Open a Credit Card for the Rewards

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.

Should you open credit cards for the rewardsIt’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.

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

Ben This post was published by Ben, Writer and Content Strategist for ReadyForZero. ReadyForZero is a company that helps people get out of debt on their own with a simple and free online tool that can automate and track your debt paydown.

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  • John S @ Frugal Rules

    We have two rewards cards and chose them very carefully. If you’re just getting them for that and have no control on your spending you’re just shooting yourself in the foot. We only use our card for stuff we already have the money for, so we just view it as a nice way to get a little something back for our normal spending.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      I agree! If you can use them strategically and earn rewards on your spending, which you would normally do anyway, then you are using the card to your advantage. As long as you don’t start overspending then it’s a great option.

  • http://www.debtroundup.com/ Grayson @ Debt Roundup

    I use my credit card for almost every purchase that I make. The reason being is rewards, but I also pay off my card each and every month. I figure that if I can get cash back for doing my everyday purchases, then why not. I make sure that I have the money in the bank to cover the purchase, so I don’t worry about that. You should be very careful if you have money sitting on a credit card because that will negate the reward.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      It sounds like you are doing it perfectly – for those who can get the rewards (on every purchase) and are careful to never carry a balance it’s a really good idea to have a rewards card. I think the key is knowing whether you are capable of that or whether you will be tempted to rack up debt.

  • Jason @ WorkSaveLive

    Up until the past year I hadn’t used a credit card in a LONG time. However, the reward bug bit me and I can’t help but take advantage of the 2-5% rewards when they’re offered. With that said, the majority of people shouldn’t touch a credit card unless they have the cash on hand to pay the bill in its entirety at the end of the month.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Good for you! Getting 2-5% rewards is nice, and it sounds like you avoided credit cards when you felt they would not be useful and are using them responsibly now that you see a reason to use them.

  • http://www.uniquegifter.com/ Anne @ Unique Gifter

    99% of our spending goes on CCs. We get rewards, 3-4 weeks of the time value of our money, plus all of the extra warranties, rental car insurance, travel insurance stuff. CCs work wonderfully for us, but they’re just a method of payment, not a source of credit.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      That’s a good point about some of the additional benefits. I like the wording you used as well: “a method of payment” is exactly the way to look at them.

  • http://www.growingfamilybenefits.com/ Kevin Haney

    I always use my credit card instead of cash. It saves extra trips to the bank, and I get a free loan along with the rewards.

    Cash comes out of my account immediately. A credit card purchase made at the beginning of the billing period is not due for 45 days. Credit cards provide an interest free grace period when paying the balance in full every month.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Yeah, it is like getting an interest free loan every month, isn’t it? But you do have to be on the lookout for fees (and avoid a balance on the card).

      • http://www.growingfamilybenefits.com/ Kevin Haney

        You have to avoid revolving a balance – paying less than the full amount due each month.

        If you keep spending you will always have a balance, even if paying in full every month. It’s a subtle but important difference.

        • http://www.twitter.com/bwfeldman Benjamin Feldman

          Exactly! I should have stated that more clearly – the way you phrased it is completely accurate.