Published in: Credit Cards | Nov. 11, 2019

4 Ways Credit Card Rewards Can Actually Cost You Money

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Rewards cards may seem awesome, but they can sometimes be more trouble than they’re worth. 

There's a reason rewards credit cards are so popular -- you get to enjoy different perks while you're paying your expenses and making ordinary purchases. But if you're not careful, you could end up losing money in the course of chasing those perks. Here are a few ways this might happen. 

A woman in rooftop pool overlooking a city.

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1. Overspending to get a sign-up bonus

It's easy to be tempted by a credit card's sign-up bonus, especially given how generous some of today's offers are. For example, you might score a sweet $500 cash-back bonus for spending $3,000 within your first three months of opening a new card. In theory this sounds like a good deal. 

But what happens when you don't have $3,000 to spend in that short a timeframe? Suddenly, you might find yourself buying things needlessly just to score that cash back, thereby negating its value. A better bet? Only go after a sign-up bonus if you know you'll manage to hit it via purchases you were already planning to make. That way, you won't bust your budget in the process. 

2. Paying an annual fee for better rewards -- but not earning enough to make up for it

Not all rewards cards charge an annual fee, but many of the cards that offer top-of-the-line perks do. And paying that fee is often worth it if the rewards more than make up for it. But if you don't earn enough rewards to make that fee worthwhile, then you're really just throwing your money away.

If you're currently paying an annual fee for a rewards card, assess your previous spending and make sure that the fee is justified. If not, you may be better off with a scaled-down rewards program that doesn't cost you anything off the bat. 

3. Spending on travel to capitalize on reward perks

Some travel rewards cards come with perks like free nights at nice hotels. But what if that "free" weekend stay costs you $700 in round-trip airfare and another few hundred dollars in food and entertainment? Suddenly, your no-cost getaway becomes anything but. 

Although there's nothing wrong with taking advantage of travel reward perks that align with your plans, be careful when arranging your plans around a specific bonus. You could end up subjecting yourself to a host of expenses that actually cause you to rack up debt. 

4. Spending so much that you wreck your credit score

We just learned that it’s easy to spend money in an effort to snag credit card rewards. But when you carry too high a credit card balance, you risk damaging your credit score. And once that happens, borrowing money becomes more expensive across the board. Falling behind on credit card payments can also damage your score, and if you rack up too much debt, you’ll increase your chances of that happening. 

Credit card rewards are a wonderful thing -- except when they're not. Be mindful of the above traps, because the last thing you want to do is hurt your credit or spend too much money on the road to getting some back. 

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