We have all heard about the amazing benefits you can get from top rewards credit cards. From free travel to cash back and gift cards, there is no limit to the type of rewards you can earn by signing up for a rewards credit card and using it every day.
Unfortunately, we almost never hear what happens when one's pursuit of rewards takes a turn for the worst. Because, for every rewards success story, there is at least one person whose story goes terribly wrong.
6 Common Mistakes People Make When Pursuing Credit Card Rewards
The rules you should follow when you pursue credit card rewards might seem like common sense; after all, paying your bill on time is likely second nature if you have been pursuing rewards for a long stretch of time.
However, there is plenty that can go wrong if you don't pay attention and don't monitor the situation closely. Here are some of the most common mistakes people make when pursuing credit card rewards for the first time:
Mistake #1: Not Tracking Their Spending
Spending with a credit card is a lot more convenient than using cash. As a result, credit can sometimes make it far too easy to spend more than you planned. And if you're not paying attention and charging all the time, your balance could easily spin out of control.
To avoid a large bill you cannot afford to repay, make sure you're keeping track of your credit purchases on a weekly, if not daily, basis. Keep a notebook and write down your purchases if you must, or simply log into your card's account management page to track your spending online.
Mistake #2: Carrying a Balance
This mistake often works in tandem with mistake #1. If you don't track your spending and wind up charging a bigger balance than you can pay off, you could end up having to carry a balance from month to month. The vast majority of the time, this means you'll have to pay interest on your purchases, and that interest will likely wipe out any "rewards" you earn.
If you want to avoid paying interest, make sure you charge only what you can afford to pay back each month. Pay your bill early – or, better yet – pay your bill several times each month to stay on track.
Mistake #3: Failing to Earn a Signup Bonus
Most rewards cards offer a signup bonus if you spend a certain amount of money within the first three months as a new account holder. For example, a card might ask you to spend $3,000 within 90 days to earn a welcome bonus worth $500 in cash back. People who fail to keep track can sometimes miss the bonus by just a few hundred dollars, which is a shame since signup bonuses are the closest thing to free money most of us will ever see.
If you want to avoid missing out on an epic signup bonus, make sure to track your spending all along. As you get closer to your minimum spending requirement and end date, take special care to make sure you spend at least enough to safely secure the signup bonus.
Mistake #4: Forgetting About Annual Fees
Some of the top rewards cards charge an annual fee after the first year. If you're not careful, you might wind up paying that fee without realizing it or failing to consider that fee in the context of your rewards goals.
While annual fees can certainly be worth it, you should definitely make sure a fee is worth paying before letting your card renew year after year. Sometimes you might find an annual fee is no longer worth it. When that's the case, you can sign up for a rewards card with no annual fee instead.
Mistake #5: Making Late Payments
If you're using credit cards for rewards, paying your bill late is one of the worst things you can do. For each late payment, you'll almost always be assessed a late payment of $35 or more. Worse, your interest rate can skyrocket and your credit score can take a ding with each late payment as well.
To avoid late payments, mark your calendar a week from your due date so you never forget. Conversely, you can also set your credit card bill on auto-pay so it is paid in-full whether you remember or not.
Mistake #6: Overspending to Earn More Rewards
Since you tend to earn more rewards the more you spend, some people use that as an excuse to spend more than they normally would. This perverse incentive can actually hurt people's finances since they may be buying things they cannot, or should not, afford.
The best way to avoid overspending is to use your rewards credit cards in conjunction with a written budget. Never use rewards as an excuse to spend more than you planned or to buy something that isn't in your budget or spending plan.
Credit card rewards offer the allure of "something for nothing," but they can be costly if you don't use them responsibly or use rewards as an excuse to overspend. At the end of the day, the best rewards plan is one where you are in control.
And if you're not in control, you probably shouldn't pursue rewards in the first place.