If you’ve flown recently, you may have noticed that the flight attendants on board announced some kind of special in-flight credit card offer, then walked around the cabin offering sign-up forms and pens. These deals usually include thousands of miles in exchange for getting approved—sometimes stipulating you must pay a yearly fee or spend X amount of money on the card to qualify. It’s very tempting for travelers to earn those miles, so some people sign up on the spot.
Air mileage is just one example of the types of incentives credit card companies use to encourage consumers to open a new card. Many store credit cards dangle offers like X percentage off purchases, cash back or a sign-up bonus. Some cards advertise no or low interest rates for an introductory period, like six months or a year. Others simply offer general cash back on everyday purchases like groceries, gas, etc.
Credit card specials sweeten the pot, giving consumers an extra reason to want to enroll beyond building credit or extending their current credit limit. But it’s important to be prudent before opening any credit card—and especially before racking up purchases.
The Risks Of Credit Card Offers
Credit cards with rewards tout the positives, obviously. But what are the hidden dangers inherent in these offers? The Simple Dollar lays out a few major pitfalls:
- Spending To Earn: Beware of spending money you weren’t otherwise going to spend just to hit a sign-up bonus, especially when opening multiple cards. This can put you on a fast-track to balances that are harder to pay off.
- Taking On Debt To Earn Rewards: When you find yourself spending just to earn rewards, you can easily start accumulating debt. Then you’ll have to pay interest which can leave you paying more than you actually earned in rewards.
- Damaging Your Credit Score: Opening too many new lines of credit within a short period of time may signal to creditors you’re struggling financially. New credit makes up 10 percent of your FICO score. Opening new cards also shortens the average length of your credit history which accounts for 15 percent of your FICO score.
Make sure you understand the terms and conditions on credit card reward offers, like what you have to do to earn rewards and whether there’s an introductory period. Set your expectations accordingly.
Many Americans have opened a new card for whatever reason only to find it contributing to their credit card debt problems over time. With the average American household facing thousands in credit card debt alone, it’s important to be more selective than ever about the credit cards you open—pay at least the minimum balance ahead of each due date. Many Freedom Debt Relief reviews mention out-of-control credit card debt as a reason they eventually have to pursue settlement; it just goes to show how easy it is to accumulate debt using credit these days.
The Rewards Of Credit Card Offers
Reaping the rewards on any credit card offer depends on one thing: The ability to pay your balance in full each month. Why? Because chances are any interest you have to pay on an outstanding balance will outweigh the value of the rewards you earn. According to one practical example from The Balance, earning between 1 and 5 percent cash back on each purchase you make will be negated, and then some, by having to pay 15 percent APR if you carry a balance over month to month.
Care For Your Credit
Know the risks and rewards of credit card special offers before opening any new line of credit. What may look like a great deal at first glance could actually worsen your financial outlook down the line.
