Home > Credit Cards > 6 Ways Chasing Credit Card Rewards Can Backfire

Comments 0 Comments

[Update: Some offers mentioned below may have expired. You can view the current offers from our partners here — Chase Slate. Disclosure: Cards from our partners are mentioned below.]

There is a lot to like about credit card rewards. Cardholders can earn valuable points, miles and cash back just for spending money on things that they would normally buy.

But at the same time, the temptation of rewards can lead cardholders to make unwise decisions that will ultimately cost them more money than any rewards earned were worth. Here are six situations when chasing credit card rewards can lead you down a bad path.

1. Going Into Debt

The most valuable rewards offered might be worth about 5% of the amount spent (here are some of the best rewards credit cards out there). But even when you can earn those rate of returns, you are wasting 95% of your money if the purchases you make are wasteful. This might seem clear, but card issuers know that some of their customers have rewards on their mind when they use their credit card, and this can entice people to overspend, either consciously or not. Overspending and getting yourself into debt can have a significant impact on your credit scores. You can see how your debt is impacting your credit scores for free on Credit.com.

2. Overspending to Earn a Sign-Up Bonus 

Credit card sign-up bonuses can be incredibly generous offers to earn hundred of dollars worth of points, miles or cash back. Nevertheless, these offers usually require cardholders to reach a minimum spending threshold within a limited time period. So when a cardholder has to spend thousands of dollars in order to earn their bonus of points or miles, it can lead them to make unnecessary purchases. And just as before, the points or miles earned are rarely, if ever, worth it if cardholders spend hundreds or even thousands of dollars unnecessarily.

3. Using a Rewards Credit Card When You Already Have Credit Card Debt 

If you have credit card debt, like roughly half of all Americans, then you should not be shopping around for a rewards credit card. That’s because rewards cards almost always have higher interest rates than comparable, non-rewards credit cards. The additional interest charges you incur will typically cost more than any rewards you are earning. In addition, being rewarded for spending more money is probably the last thing that you need if you are having problems managing the credit card debt you already have.

4. Having to Overspend to Redeem Rewards

Even when you are successful at earning rewards without incurring debt, there can be additional costs to redeem rewards. For example, airline credit card users who have accumulated plenty of miles may want to redeem them for a flight to take a nice vacation. But just having a free flight does not mean that the vacation itself will be affordable. Credit card users will still end up paying for hotels, car rentals, food and tourist attractions on a typical vacation, and the airfare costs might have only been a fraction of the total expenses. In other situations, those who are redeeming airline miles may still have to pay fuel surcharges imposed by some foreign carriers, which can add up to more than $1,000 in some cases for an award ticket.

5. Missing Out on Other Perks

Rewards cards have great perks associated with them, but there are also other benefits that rewards cards may not offer. For example, cards with the most competitive offers for interest-free promotional financing are not typically rewards cards. For example, Chase Slate features 15 months of interest-free financing on new purchases and balance transfers, and is the only such offer with no balance transfer fee. Unfortunately, this card does not offer any rewards. Other non-rewards cards may be offered by the bank or credit union where you have a checking or savings account, which can be very convenient.

6. Paying Too Much in Annual Fees

Rewards credit cards can charge considerable annual fees, up to $450 in some cases. In many cases, these fees can be worth it, but for other cardholders it is a waste of money. Credit card users who continue to pay these fees out of habit, without considering the value of the benefits they receive from these cards, are often receiving poor value.

At publishing time, the Chase Slate is offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

More on Credit Cards:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team