How we beat rewards cards—and why it’s a dangerous game to play
Lots of us are taking advantage of rewards-based credit cards to rack up points for big-ticket items like international airfare or fancy hotel bookings. But these seemingly free enticements can lure us into some bad money behavior: charging recklessly and racking up mounds of debt. So what are the right and wrong ways to use rewards cards? I assembled a crack team of rewards card junkies—Matt, 34, Chandra, 22, and Kerry, 27—to share how they live their best rewards lives, without falling into the pitfalls of points.
Why did you get into rewards cards to begin with?
Kerry: I got my first rewards card in college. It stipulated that if I spent money on books, dining, and entertainment—and got a good GPA—I would get points to spend on things like gift cards and travel. It seemed like too good a deal to pass up. Of course, it was: It led to me charging things like spring break vacations, and I got into credit card debt.
Chandra: I heard that you could earn points and then redeem them for travel—which I thought was a great deal! I was also drawn in by the “beyond points” perks—a 24/7 concierge service (which I’ve used), free airport lounge access, a free application for Global Entry/TSA Pre-Check (normally $100), free travel and trip-delay insurance (your card will reimburse you for delayed travel even if the airline won’t), free collision insurance for rental cars—things like that.
Matt: My wife and I applied for a rewards card because it didn’t charge foreign transaction fees, and we were heading to Rome for vacation. Without it, you could pay 1% or more per transaction for “currency conversion.” That adds up when you’re living it up—or even traveling on a modest budget—in Europe. Once we started using the card and milking all the travel-points benefits, we were hooked.
Kerry, you mentioned that your first taste of rewards led you down a dark path. Are there other possible downsides you’d warn a rewards card applicant about?
Kerry: One downside is feeling like you have to spend to pay for the card and rewards when you normally wouldn’t be spending money in the first place. That can snowball into debt or drain your savings. Do the math. If you’re not a frequent traveler or dining-out person, or whatever rewards the card offers, don’t get it—because, like at a casino, that way the house always wins. It won’t be worth the fee—which is as high as $450 a year for some of these cards.
Chandra: I feel less guilty eating out at restaurants, which is a bad thing because food is my top spending category besides rent. I spend a lot eating out, somewhat encouraged by the points I’m accruing. I would say: Do your research! There’s no one size fits all credit card, so make sure you pick one that works for you.
Matt: I can be kind of irritating to my wife, telling her which card to use for what purchase, managing our credit spending like it’s some sort of high-stakes game. I always feel like I’m making a mistake, missing out on some discount or points possibility. But it may be impossible to get the maximum benefit from your rewards cards. We were saving a lot, but also spending a lot. Recently, we found that we needed to cut back our rewards-triggered spending significantly to save for a home down payment—our spending had become bloated with things like food delivery and restaurant charges. We cut way back by cooking at home, and shaved well over $1,000 from our monthly bill.
Do you think more communication would be good here—like sharing with others about your rewards cards experiences?
Kerry: Yes! Before I got one card, I did a ton of research, especially on blogs that had gotten a first look at the card. Having that information helped me decide whether to apply. Then when I got the card and saw more of its benefits, I recommended it to others. I’m pretty sure I got another 10 people to sign up for this particular card.
Chandra: I have a few friends who, like me, are very into rewards cards, and we constantly text each other about deals and send each other links to data points and posts or threads. For example, the other day I texted a friend about opening a new card. She gave me a list of cons, and I ended up not applying.
So it’s important to evaluate your rewards cards carefully?
Matt: Yes. And here’s another key point: Never carry a balance, so the APR, which tends to be a lot higher on rewards cards, doesn’t matter. I think these cards are for mature users who are mindful about their finances. You have to have moved beyond debt.
Kerry: If you use rewards cards in a responsible way, you get great benefits for things you’re already spending money on. For me, it’s a great way to save on travel costs because if I can pay for my flight and hotel with these points, then all I have to worry about is my daily spending. The bad takeaway is that you can get lured in by the points but not have the money to actually pay your charges off and end up in debt, like me in college. At the end of the day, a rewards credit card is still a credit card—aka, loaned money—so use it with caution.
(Quotes have been edited for style and length.)