A new study indicates that several credit card users seeking to fully utilize the rewards scheme are not prominently benefiting, as the real advantages emerge only when monthly balances are paid in full. Moreover, it points out the irony of customers lured in by potential rewards, but failing to recognize the implications of carrying an ongoing balance.
Many users end up accumulating interest charges that sometimes outweigh the value of their rewards, emphasizing the need for responsible credit card usage. The risk of overspending for rewards is underlined, explaining how the costs can supersede the rewards. In essence, the key to maximizing credit card rewards lies in settling card balances every billing cycle.
The research recounts the real-life scenario of a college student, reflecting the issue most cardholders face, i.e., overlooking monthly interest charges in the wake of maximizing credit card rewards. This shared predicament echoes larger financial pitfalls that customers often miss in their quest for rewards. The higher the intent to reap rewards, the higher the chance to neglect the accruing interest, ironically leading to burgeoning debts.
According to a Bankrate study, two-thirds of Americans with credit card debt are still trying their best to maximize rewards. However, the winnings might not compensate for the debt incurred, considering that the average credit card interest rates cross 20%. It is crucial to weigh the pros and cons before falling for the lure of rewards and potentially incurring high debts.
Ted Rossman, Senior Industry Analyst at Bankrate, suggests eliminating the debt before devoting to rewards. An effective tool for this could be a zero-percent balance transfer card, which allows users to tackle the debt without incurring interest for up to 21 months, though it comes with a nominal fee.
Rossman also advices considering simpler payment methods like cash or debit card when faced with significant debt. For further assistance, non-profit credit counselling services could also be valuable. Even with the growing attraction for rewards schemes, it’s important for the younger generation to understand the risks associated with the overuse of such programs for maintaining financial health.
