Five Consumer Warnings Involving Reward Credit Cards

By , Editor-in-chief
Our credit card articles, reviews and ratings maintain strict editorial integrity; however we may be compensated when you click on or are approved for offers (terms apply) from our partners. How we make money.
Five Consumer Warnings Involving Reward Credit Cards

Nearly every card issuer that issues credit cards offers its customers a reward or rebate program. Rebate credit cards will reward you for making everyday purchases with your card. Rebate cards are very popular and when used in a wise manner, rewards cards can help improve your bottom line- who doesn’t like free stuff?!? However, five potential drawbacks of rewards credit cards can turn these generous programs into financial quicksand.

1. Rebate Credit Cards Often Have Higher Interest Rates

Many cardholders have become savvy enough to know that merchant interchange fees subsidize the most popular reward credit card offers. However, a careful inspection of interest rates among common reward and rebate credit cards reveals another profit center for lenders: high interest rates or APRs (when compared with standard, nonreward cards). Carry a balance, and your finance charge will likely cost you much more than the 1-5% rebate that you earn back in rewards.

2. Reward Cards Can Result in Big Finance Charges

One of the pitfalls of rebate credit cards involves reimbursable purchases. Some cardholders use airline reward cards to earn bonus frequent flyer miles during company trips. Other consumers choose reward cards when purchasing big ticket items from vendors offering mail-in rebates. If, however, a retailer rejects your rebate claim and you don’t pay your bill in full by the due date, you're on the hook for interest charges.

3. Tempting Credit Card Rewards Can Result in Budget-Busting Expenses

Although some cardholders have perfected the art of paying their reward card bills in full every month (which is the first cardinal rule of leveraging reward cards), following program guidelines might cause other expenses to balloon:

Some popular cash back credit cards require annual purchasing thresholds that can be hard to reach. Consumers sometimes spend more (than they would if they used a debit card or cash) just to hit these spending thresholds and, in the process, blow their monthly budget. Similarly, reward cards that require purchasing at specific stores may cause you to drive longer distances and pay more for everyday goods that cost less at your neighborhood store.

4. Rebate Credit Card Pitfalls Include Fees

Earning enough bonus miles on your airline reward credit card to fly cross-country might sound like a great deal. However, with redemption fees of up to $75 for each leg of your journey, it can feel like you're paying “through the nose” to get an airline ticket. Likewise, some reward cards have annual fees. Use your card too infrequently and you might end up giving your entire rebate (or even more!) back to the issuer.

5. Reward Credit Card Benefits Can Quickly Vanish

Many reward programs are scaling back in the "credit crunch" environment. When that happens, cardholders often receive little warning. In some cases, you may have limited options when it comes to converting your reward into cash, points, air miles, or merchandise. Another ugly scenario: program rules buried in the fine print that allow issuers to revoke reward privileges immediately for missed payments or for other problems with your account.

How to Use a Reward Credit Card to Your Advantage

With discipline, it's still very possible to use reward credit cards to your benefit without getting burned. For example, my wife and I have gotten over a $1,000 each year for the past several years using our favorite cash reward credit card. So, I personally can attest to just how lucrative these cards can be. To that end, here are some tips to help you get the most bang for your buck:

  • Focus all your credit card spending on one or two cards with rewards you're guaranteed to use regularly. Remain focused on your overall budget instead of adjusting purchasing to suit your card's program restrictions. Review the fine print before accepting applying for any reward credit card.
  • Keeping track of your spending can help you accelerate your rebates. I hope that you can enjoy your rewards free and clear like I have for years. It’s nice to get something back from a credit card company for a change!

Do you know any other reward credit card warnings or tips? We welcome you to share your ideas on our active credit card forum.

Featured Partner Cards


Be the first to comment!