by Lyle Daly | Updated July 21, 2021 - First published on Nov. 14, 2020
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Don't let the opportunity for a sign-up bonus backfire on you.
Sign-up bonuses are often one of the top perks of getting a new credit card. All you need to do is complete the bonus requirements -- usually meeting a spending minimum -- and you'll earn a big chunk of bonus rewards.
Extra cash back or travel rewards points are always tempting. But there are a few ways that even the best sign-up bonuses can go wrong. If you're planning to apply for a card with a sign-up bonus you like, watch out for these common mistakes.
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What makes sign-up bonuses risky for consumers is that they incentivize spending money. It's much easier to talk yourself into unnecessary purchases if you use the logic that it'll get you closer to those 50,000 bonus points.
Just remember the whole point of credit card rewards is to save money. If you're spending extra to get bonus rewards, you're not really saving anything.
The smart approach is to use your regular expenses to hit the spending minimum on a sign-up bonus. If it's a big spending minimum, you can also wait until you have some big purchases coming up before you open the credit card. Since you're going to make those purchases anyway, it makes sense to use them toward a bonus.
Even worse than unnecessary purchases are purchases you can't afford. You should never go into credit card debt to get a sign-up bonus. The value of the bonus may put you ahead initially, but you'll then lose money every month on credit card interest.
If you need to go into debt to reach the spending requirement, it's not the right bonus for you. Instead of applying for a card with a bonus that's out of your reach, pick one that doesn't require you to spend so much.
There are a wide range of spending minimums available on different sign-up bonuses. If $3,000 or $4,000 in three months is too much, you don't need to stretch your spending. Try a card that requires $2,000, $1,000, or even just $500 over that same timeframe.
If you don't reach the spending minimum, you'll miss out on the entire bonus. It's important to keep track of how much you need to spend, the amount of time you have, and which transactions count toward the spending minimum.
Purchases are almost always the only type of transaction that counts toward bonus requirements. Balance transfers and cash advances typically won't.
Some card issuers may not count every type of purchase toward a spending minimum either. For example, purchases that are considered a cash equivalent, such as sending money through a payment service or buying a prepaid debit card, could be considered ineligible.
Credit card companies don't look kindly on consumers who receive a bonus and immediately get rid of the card. There are even card issuers that reserve the right to take back a bonus if you cancel or downgrade the card within one year of opening it. American Express cards are a well-known example, and include that rule in their terms and conditions.
You could, of course, redeem your bonus right away so that there's nothing to take back. But the card issuer could decide not to approve you for future credit cards.
If you don't want to burn your relationship with the card issuer, hang on to the credit card for at least a year.
When you find several sign-up bonuses you like, you might be tempted to get them all. There's no rule against doing this, but it does warrant extra caution.
More bonuses mean more spending minimums to keep track of and fulfill. If you miss one, you've lost a bonus opportunity. Since you'll also need to spend more overall, you're more likely to overspend or end up in credit card debt.
If you stay organized, you could juggle multiple sign-up bonuses. It's more complicated, though. You're better off getting one bonus at a time if you have any doubt about meeting those different spending minimums.
A sign-up bonus is a great way to maximize your credit card rewards. There are, however, some risks that can cost you if you're not careful. Make sure you follow all the rules and don't overspend so you can get your bonus without taking on any debt.
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