Consider the risks and benefits of credit cards
Credit card reward programs come with a seemingly endless variety of perks and points systems — and may seem like a win-win situation — but financial experts say consumers ought to think things through carefully before attempting to spend their way to a free trip.
When it comes to applying for a credit card, the array of options can be intimidating. Many credit cards will come with a cash-back or reward system, available to users simply for spending, but it can be easy to fall into the pattern of impulse spending or overuse, which can lead to credit issues.
The appeal of receiving rewards or cash back simply from using a credit card can lead to consumers overusing their cards, thus eliminating the benefit they were hoping for in the first place. It's easy to look at a credit card statement and focus on the points balance, forgetting about the 18-24% interest that is collecting on the outstanding balance.
Another factor to keep in mind is the annual fee. Some cards charge a higher annual fee because they come with an array of perks, but the user needs to consider how many of these they will actually use - and how frequently - to determine if the annual fee is worth it. For instance, travel cards often offer hotel and car rental discounts or free travel insurance, but for those who rarely or never travel, a $100 or higher annual fee doesn't make sense to spend. Opt for a cash-back card instead.
Regardless of the card you choose, the importance of keeping the balance at a reasonable level and paying at least the minimum payment cannot be overstated. Just one late or missed payment can easily damage your credit score, which can take years to repair.