Credit card reward plans need to be evaluated carefully to determine if they are a blessing or a curse for building solid financial health.
Credit Card reward plans can tempt one to choose the wrong credit card because they encourage spending.
But that doesn’t make reward credit cards wrong for everyone, especially someone who does not succumb to such temptation. The factors that should be considered when deciding on credit card reward plans include: the “real” cash back percentage, caps on earning points, points expiration, annual fees, and the complexity of point redemption. The best way to pay off a credit card involves a comprehensive strategy that addresses one’s temptations to spend, so carefully evaluate credit card reward plans, starting from the point that most likely they will not be a suitable tool to help improve one’s overall financial health, if not eliminate debt.
The “Real” Cash Back Percentage
While many card offers declare “5% cash back”, in reality those are oftentimes only for specific types of purchases, or even companies. Many of these reward credit cards, when used for a wide basket of goods and services, only average a cash back rate of 1%, which is a more typical percentage amongst all cash back credit cards.
Caps on Earning Points
Point caps can run anywhere from a couple of hundred dollars on the low end to several thousand on the high end. Even if you are both a big spender on credit and are highly responsible, caps greatly reduce the value of a credit card reward plan.
Points Expiration
Expiration periods for points are especially dangerous since they greatly
entice one to spend more. Give the scale of points needed to redeem something of value, you feel induced to buy a lot on credit in order to be able to redeem the points fast enough before they disappear. Read the fine print on any credit card offer and do not hesitate to call the lender with questions before you sign up for the card.
Annual Fees
Annual fees can kill the value of point programs by charging you up front for access to credit card reward plans. If you’re looking for the best way to pay off a credit card as well as overall debt, don’t choose a card with an annual fee unless you have a clear and compelling reason to do so.
Redeeming points can be be as easy an receiving an automatic credit to your account, or as complicated as filling out forms, only to wait weeks while they are processed for a check send in the mail. Since
simplicity is golden when getting
successfully getting organized to reduce and eliminate debt, read and understand the terms of point redemption in the contract and have a sales representative for a particular credit card offer walk you through the redemption process.
Tags: credit card annual fees, credit card point expiration, credit card point programs, credit card point redemption, credit card reward plans, Credit cards, debt
This entry was posted
on Saturday, February 28th, 2009 at 1:06 pm and is filed under Credit Card, Lending Industy.
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