Credit card companies, are coming up with many great incentives to attract you to use their card. Many of them are offering "points" that can be used for anything from free groceries to deep discounted vacations or even free vacations if you collect enough points.
This is a great additional tool for your personal finances, if you are disciplined enough to use them the right way.
Of course the credit card companies, want you to use your card more and more, and the incentive of points is a good way to do just that. But also, there is the hidden danger in these credit cards of fees and higher interest rates.
Many of these cards have an annual fee, as well as much higher interest rate, and lets face it, the idea is, for you not to pay the balance, this is how they make their money.
So, if you get excited about collecting points, and use your card for everything you can and then some, and you have problems paying it off when the bill comes, then is that discounted trip really worth it? Did you end up with a free plane ticket, worth approximately $500.00 or so, and get excited that you had got something for free? Did you check how much interest you paid while collecting those points?
Don't Carry a Balance on a Points Credit Card
You may have just paid for that ticket in higher interest fees. Not to be a downer here, these cards can work well, if you monitor yourself, your spending and pay it off every month. Don't even leave a dollar balance on there, because they will now charge interest on everything your purchase from that point on, right from the moment you purchases it, if you leave any kind of balance unpaid.
So, if you are good with your money, and you watch your credit card spending, then go for it, and use that card on all the purchases you would NORMALLY make. Not more! But then allow that money out of your paychecks to pay the balance off each and every month.
Only then will you truly have got something out of those points. If you do this right, and take the time to watch your spending and keep a close eye on your balance as it grows on these points credit cards, then you will have really earned those freebies.
Of course, the credit card company won't be too impressed with you, they will only get the annual fee out of you. That is the only other issue you have to consider. Will you use these points? Is this something you want? Or was it something you thought you might use? If it is not, then you are paying that annual fee on these points cards for nothing. You might as well just get a basic credit card.
But if you make all your purchases on this card, then take that annual vacation and save hundreds on these vacations, then you can justify the fee. But shop around, many of the points credit cards are getting rid of the fees, or lowering them. I have one that charges me $50.00 per year. But because I use the card for everything from gas to groceries, I accumulate a lot of points, and have been able to get a airline ticket each year for free.. without any interest charges. Therefore I guess you could say that free airline ticket actually cost me $50.00, but still a good deal.
So, look at your points card, and if you have been paying interest, add it up, and see if you really are getting any deals out of these points. If not, then you should skip the points, and transfer this balance to a low interest card, and save up for your trips yourself!
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