Pay Off Your Cards Monthly
Simply put, if you don’t pay off your card in full every month, the rewards aren’t worth it. For example, on a cash back card, you can earn between 1% and 5% cash back on every purchase you make. If you have an average annual interest rate of 15% on your credit card and carry a balance, you are paying much more in interest than you earn from the cash back rewards. Therefore, it’ll save you money to pay for your purchases in cash instead of relying on a credit card just for the cash back deal.
Do You Have an Annual Fee?
Another thing to consider is the annual fee charged on your credit card. It’s often best to look for a credit card with no annual fee. With so many credit cards available on the market now, there’s no reason to pay an annual fee.
Sometimes, however, depending on the type of rewards you are trying to earn, it may make sense to get a credit card with an annual fee if you expect the value of your rewards to exceed the cost of the annual fee. Before signing up for a rewards credit card, you should check if you’re on track to earn more in rewards than what you will pay in the annual fee. Then, you should compare that with similar rewards cards with no fees to see if you would be better off switching between cards.
When Can You Use a Rewards Card?
If you pay off your balance in full every month, it might be wise to choose a credit card that offers cash back or rewards. Some people earn hundreds or even thousands of dollars annually in credit card rewards, not to mention free flights or hotel stays. It is important to read the terms and conditions carefully on your card to ensure that you can use the rewards you are trying to earn.
A rewards credit card is only a good option if you are already committed to your budget and pay your balance in full every month. Otherwise, you’re not getting the deal you think you are. Remember that you should be financially ready to handle a credit card before you can benefit from a rewards card.
Why Do Banks Offer Rewards Credit Cards?
Rewards credit cards are used to encourage people to put money on their credit cards to earn rewards. But remember that when people buy things using credit cards, they tend to overspend – and rewards credit cards are one of the best ways credit card companies have to encourage people to continue spending money on their credit cards.
If you currently have a large amount of debt on your credit cards, you should stop putting things on your card until you pay it off in full. Once you do, you may consider using it to earn rewards, as long as you can pay off the balance in full every month.
Maximize Your Rewards Card
First and foremost, you should pay off any consumer debt before even considering opening a rewards credit card. Create a budget and stop using your credit card altogether. This practice will help you develop self-control and learn how to budget to prevent credit cards from becoming a problem in the future. A debt repayment plan will also help you pay off your debts faster and save on interest.
Once you stop paying interest on your credit cards, you may be able to take advantage of rewards credit cards. Do your research and find a rewards card that offers benefits you will actually use. Rewards credit cards may contribute cash back to an individual retirement account or a college savings account or a brokerage account.
If
You travel regularly, so a travel card or frequent flyer card might be a good option. If you’re looking to earn money on your purchases, a cashback card might work. Then, use your cards to pay a specific amount of bills each month and pay off the balance in full every month. This way, you will accumulate rewards, not debt.
Cancelling a Rewards Card
If you find yourself carrying a balance on your credit card, you should stop using your credit cards for rewards. You may want to cancel them once you pay off your balance if you know you will have difficulty using credit wisely. You might seek out a new rewards card if you are paying an annual fee on the card.
Searching for new cards and looking for the best rewards and cards with lower or no fees can help you make the best financial decision for yourself. However, if you are preparing to buy a home, you might want to wait until you secure your mortgage before applying for new cards and closing old ones.
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Source: https://www.thebalancemoney.com/is-it-worth-having-a-credit-card-to-earn-the-rewards-2385752
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