There are those who aren’t in credit card debt and vow to never be or possibly vow to never even use credit cards again. And there are those who use credit cards to their advantage to earn rewards like cash back, and free or discounted travel.
As I was visiting with one of my friends the other day, the topic of travel hacking using credit card rewards came up in our conversation. She is planning to take a trip soon and was complaining about the price of her flight and hotel for the trip.
After I told her about travel hacking, she was very interested in getting started, but like a good personal finance blogger, I cautioned her about the risks of trying to travel hack and signing up for new credit cards to get rewards too.
If you are considering getting a new rewards credit card for any reason, here are 4 things you should consider first.
Introductory Offers and Timeline
Many rewards credit cards offer special introductory bonuses and offers for new card members. These are obviously an incentive to get you to sign up and they work on a lot of people. Where the cards make money on these things is when people don’t pay attention to the expiration date of the introductory offers to make sure they are getting the most bang for their buck.
Introductory Interest Rates
Just like introductory offers, many cards offer lower than normal interest rates for a certain period after you become a card member, after which the rate skyrockets 10-15% or more! The best way to avoid falling for this trap is to pay off your card in full each month.
Spending Minimums and Limits
Some rewards cards offer extra bonus points and cashback if you spend a certain amount of money, say $5,000, within a certain amount of time, like 3 months. If this is not in your budget or plan already, don’t fall victim to this trap. The extra bonus offered by hitting this spending minimum is not worth you buying things you don’t need or even worse, paying interest on the things you didn’t need and hadn’t planned to buy in the first place.
On the other hand, sometimes you are not approved for a high enough spending limit to allow you to put enough big purchases on your card to earn the rewards you want or need for an upcoming trip. Both of these scenarios need to be thought out before you even apply for a new rewards credit card.
Read the Fine Print
Occasionally there are rewards cards with some funky fine print requiring you to pay off the purchases on your card in order to use your “earned” rewards point. Other cards will put a cap on the amount of rewards points you can earn in a set period of time. You should always read the fine print to make sure none of these out-of-the-ordinary circumstances are applicable to the card you are applying for.
What other things do you think need to be considered before signing up for a rewards credit card?