| April 4, 2012

Weigh the pros and cons of paying bills with reward cards

Reward credit cards are a popular way to save money on necessities, such as groceries and gasoline, or earn discounts on entertainment, travel and other perks. These products also have different reward structures, with some offering cash back for spending, and others providing points or airline miles. Because these programs are designed to help members save money, some reward cards can benefit a household's financial situation immensely – if they use them properly.

For all their benefits, reward programs can also be dangerous if misused and lead to significant credit card debt. Rewards cards carry higher interest rates than regular credit cards, and can have additional fees such as an annual card fee. You can end up paying much more for your purchases if you don’t pay the bill in full every month due to the accrued interest.

For these reasons, it's important for consumers to consider their own spending style before using these cards. A recent Fox Business article highlighted that some Americans choose to use reward cards to pay for utilities, groceries and other bills, theorizing that they would be re-routing the money in their bank accounts to cover these costs anyways.

While this logic makes sense and is enticing, there are a few things to consider before relying on cards for these costs. First, some of these bills may fluctuate on a monthly basis, making it difficult for consumers to predict their balance. For example, during the summer months, consumers may use the air conditioning in their homes more, leading to a higher than expected utility bill. If a household is on a strict budget, they may be tempted to put the payment on their rewards card and allow the balance to carry over to the next billing cycle. The same scenario holds true for other variable costs, such as groceries and rising gas prices. Over time, their balance may begin to accrue interest, which may be as high as 24.99 percent, which can lead to a highly inflated balance.

In addition to this scenario, some cardholders may be forced to spend more than is good for their budgets in order to take advantage of rewards. Credit cards that require members to spend a large amount in order to access or gain savings from their programs can be dangerous to consumers who are on a budget, and may not have the means to pay their balance in full each billing cycle. For this reason, adults who are considering getting a rewards card should compare different products, and choose one that allows them to save, rather than one that may have the most appealing incentives.

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