People are shifting their way of purchasing goods, but are they making a good decision?

When we talk about the current credit card market, there are two major things on the rise in recent years. First, card rewards and incentives are increasing, and second, credit card debt is rising in conjunction.

Think about it like this: The upward trend in rewards is causing an upward trend of debt. The reason is basic psychology. We’re given a reward to complete an action, perhaps spending X amount at a certain store will garnish you 25% cash back rewards. This seems great, you get what you want, and get 25% cash back for putting it on your credit card.

The truth is, while you may be getting perks and benefits, you’re still racking up unsecured debt at very high interest rates. Is that 25% cash back reward really worth it?

The following are few ways in which your credit card rewards might not be as generous as they seem:

Airline credit card rewards are usually not what they appear to be.

Adding miles is one of the common reasons people give for holding on to their credit cards. There are many no-win situations including the annual fees of these cards. Suppose that the credit card offers you a mileage point for every single dollar spent.

It will charge you an $80 annual fee for this offer. If you spend $8,000 on the card each year, it’ll take almost three years to have enough miles added to your card to get a free one-way coast to coast ticket (usually 25,000 mileage points). You will have to spend $240 in annual fees by then which is equal to the amount in which you can buy a round trip plane ticket by yourself.

Even if you start off with a definite number of bonus-miles just for signing up, the scheme isn’t certainly planned in your favor. Some of the miles expire before you even use them. People sometimes complain about airline miles in a way that the points are impossible to use. The airlines cap the number of seats which they give for reward travel on each flight.

What happens usually is that the airlines sell miles to banks. The banks then use these miles as rewards to attract consumers and encourage them to spend on their card. This has caused a surplus amount of miles with no more available seats to be purchased with these miles. With increasing competition for reward seats, each mile/point is becoming less valuable. Thus, the miles required for claiming a free reward flight keep going up.

NOTE: It’s cheaper to buy your own ticket rather than using a credit card and earning it with added miles. Also, there will be less risk of ending up in debt. Now, if you travel regularly, and plan accordingly, you can utilize airline miles to your advantage. Your average consumers, however is not likely benefiting much from these rewards.

Cash-back cards are unable to give you actual cash back.

Although, people like cash as much as the next person, cash-back cards are not a good option to get cash and save it. In order to get cash back from a credit card, you have to spend on said credit card, usually thousands. And, you’re likely only looking at $100 cash back.

We probably should have started with this one, but it’s not actual cash in your pocket but just a credit applied to your account. So your cash back reward is a credit to your account, so you can spend more money! Are you beginning to see how this works?

Cash-back credit cards do not generally give you cash on every purchase. Some companies limit it to gas or dining out. Some may claim to give back on each purchase but limit it to a certain amount of each transaction. Additionally, the credit-card companies usually have a strict limit on the amount that they will give you back in a billing period or a year.

NOTE: Always read the fine print on the application and pay attention for the details limit paragraph.

Don’t be fooled by credit card rewards. The true purpose is simply to make you spend more, plunging you further into debt.

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