The Personal and Professional Pros and Cons of Rewards Credit Cards

The Personal and Professional Pros and Cons of Rewards Credit Cards
by Scott Faith

Rewards are the main ways in which credit card providers can differentiate themselves and attract more business. Obviously enough, some rewards cards are better than others. If you don’t know which one to choose, you can take a look at the top best rewards credit cards according to Money Under 30. If you are still unsure, we have put together a simple guide, highlighting their pros and cons.

Pros

In the long run, credit cards come with a rich reward system, which should help you save money or even earn some extra money.

–          The actual rewards

As the name suggests, these credit cards offer a reward program. The rewards come from an interchange fee that the bank charges you for each transaction. There are different types of reward programs and it is important to choose a credit card with rewards that match your spending habits. For example, if you love to travel, you should look for a card that offers airline miles or hotel points as rewards. If your spending habits are hectic, you could benefit from cash back rewards that give you back a small percentage of each purchase.

–          Sign up bonuses

If the rewards don’t convince you to choose a particular credit card, perhaps the sign-up bonus will do the trick. These bonuses are quite consistent, but the trick is that they are only available if you spend a certain amount of money within a few months after being issued the card. These cards are great if you are already planning on making some major purchases. However, if big expenses are not in your future, don’t spend more money just to get the sign-up bonuses. The point of these rewards is to help you save some or earn some extra money in the long run.

–          Insurance

There are many credit card providers who offer different types of insurance packages as part of their reward programs. The most common types of insurance packages are travel insurances. These packages usually cover delayed flights, natural disasters, illnesses, rental car insurance, hotel insurance and much more.

–          Protection programs

Shopping with a credit card is not just comfortable, but it can also help you protect your money. Many credit card providers offer purchase protection and fraud protection. Purchase protection applies to the situations when you buy something and that item is sold for a smaller price at the same store the following days and the store refuses to refund the difference. Purchase protection can also apply to extended warranties for theft and damages. Fraud protection is another advantage of owning a credit card, as it protects your money in the unfortunate scenario where your card is stolen and used for purchases.

Cons

While rewards are great, you should never be so taken away with reward points that you fail to see the downsides of owning a rewards credit card.

–          Interest

As you can imagine, banks are not charitable institutions looking to rewards shopaholics. They seek to make a profit, and in the case of rewards credit cards, they profit from monthly interests. In other words, every time that you fail to pay your balance in full, you will be charged a considerable interest. You should only use credit cards if you are capable of paying your balance every month.

–          Late payment reports

If you are late with any of your payments, it will be recorded on your credit report. While singular events won’t make much of a difference, if you make a habit of being late with your payments, your credit score will drop. This will make it very hard for you to be approved for loans in the future.

–          Foreign transaction charges

If you travel a lot, for either business or pleasure, you might want to use your credit card aboard, but you should think twice about doing so. Some cards charge foreign transaction fees that can rise up to 3% of the transaction value.

• Annual fees

Most credit card issuers will attract you with deals that promise no annual fees for the first year, but after that, you might find yourself paying some exorbitant fees. In an ideal scenario, these fees should not exceed the benefits provided by the card, but this only happens when you choose the right card for your shopping needs.

Conclusion

As you can see, there are both advantages and disadvantages to owning a rewards credit card. If you choose a card suitable for your needs and you learn how to responsibly manage your money and how to make the most of the rewards program offered by your bank, the benefits provided by the credit card will far exceed the downsides. It all depends on how disciplined you are and how much effort you are willing to put into managing your money.

Scott Faith is a veteran of a  half-dozen combat deployments and has served in several different Special Operations units over the course of his Army career. Scott’s writing focuses largely on veterans’ issues, but he is also a big proponent of Constitutional rights and has a deep interest in politics. He often allows other veterans who request anonymity to publish their work under his byline.  Scott welcomes story ideas and feedback on his articles, and can be reached at havokjournal@havokmedia.com.