Published in: Credit Cards | Nov. 14, 2019

3 Ways Those Exciting Credit Card Offers Could Cost You Money

By:  Lyle Daly

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That credit card offer may come back to bite you.

When you see all the different kinds of credit card offers that are available, you may find yourself wondering how card issuers make any money.

There are sign-up bonuses worth hundreds of dollars in cash back or travel rewards, and 0% interest deals lasting months or even longer than a year. If you have a good credit score, then you'll have plenty of attractive options to choose from.

A businessman paying with a credit card at a restaurant.

Image source: Getty Images

It might seem like you can't lose with these offers, but the truth is that credit card companies end up winning far more than consumers. Because with each offer, there's also a way it could go in the card issuer's favor.

1. Sign-up bonuses and purchase rewards encourage overspending

Even though it's great to earn rewards and bonuses on your credit card spending, this is also a way for credit card companies to incentivize you to spend more. Those rewards can be exactly the justification consumers need to overspend when they normally wouldn't.

With sign-up bonuses, you're often required to reach a spending minimum, such as $5,000 in three months or $10,000 in the first year you have the card, before you receive the bonus. That works out well if you would be spending the money anyway, but not if you're finding new ways to spend money so you can hit the minimum.

While you're not incentivized to spend a certain amount just because your card earns rewards on each purchase, this can still trick you into poor financial decisions. It's easy to start spending more using the flawed logic that you're earning rewards anyway.

The rewards you earn will never be worth more than what you're spending to get them. And if you end up in credit card debt because of overspending, the interest you pay will far outweigh your rewards.

2. Zero-interest offers get expensive after the intro period

You can't beat a 0% interest rate, which is why 0% intro APR credit cards are an excellent option for financing purchases. If you pay off your full balance by the end of the card's introductory period, then you won't pay any interest.

Unfortunately, many consumers fail to do that. They don't pay attention to how much they're charging or how long their balances will take to pay off. When you have a 0% interest rate, there's not much urgency to pay in full.

But if you still have a balance after the intro period's up, the card issuer can start charging you the credit card's normal APR. All of a sudden, your credit card debt will be costing you much more every month.

It's even worse if your card had a deferred interest offer. With deferred interest, you can be charged interest going back to the purchase date if you fail to pay your full balance within the intro period. 

3. Spending credits can result in unnecessary purchases

Among the more expensive, luxurious credit cards, spending credits are a popular benefit. These automatically apply when you make a purchase covered by that credit. For example, if your card covers $100 in airline fees per year and you pay a $25 checked bag charge, the credit would cover that charge for you.

Some cards have spending credits that cover a broad category of purchases, such as travel. Others have credits covering much more specific types of purchases. For example, there have been cards offering credits for Uber, food delivery apps, and clothing stores, to name a few.

It certainly looks good at a glance when a card advertises that it offers hundreds of dollars in spending credits. But this perk is only valuable if you'd already be making these types of purchases. If you start making purchases you normally wouldn't just to "take advantage" of a spending credit, then the card issuer has roped you into overspending.

Be cautious about credit card offers

Each of the credit card offers above can be extremely valuable when used correctly. Just make sure that you're the one cashing in and not the credit card company.

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