It seems like you can’t throw a stick these days without hitting a rewards card program. Nearly every bank, large or small, has subscribed to the prevailing consumer centric system of rewarding their customers for purchases. However, are rewards cards all they cracked up to be? It could be argued that rewards cards make consumers spend more money, negating the ” reward”.
Racking up the points Many consumers subscribe to rewards programs that pay dividends in airline miles. For these consumers, every time they swipe the card they are earning points toward airline travel for destinations yet unknown. In theory, this is an excellent idea to offset costly expenses associated with vacations and travel. On the other hand, consumers will justify the expenses they incur in order to earn airline miles for a trip. This can lead to overspending and honestly isn’t worth racking up the points when all is said and done.
Cash back rewards While not airline miles, cash back rewards make sense. In fact, they make dollars and cents. For each purchase, a consumer earns points that he can later redeem for cash. This is ingenious and a tremendous resource for responsible spenders. However, with most rewards cards requiring 2,000 for a $20 bonus payment, this can also steer consumers into the overspending trap. In some programs, where a point is earned for every $1.00 spent, consumers are tempted to add items to the shopping card to earn that money back. The only problem with this philosophy is that in order to receive $20, you have to spend $2,000; a meager 1 percent bonus.
Your relationship with money As with practically anything else, your personal relationship with money will determine your financial results. Consumers who are prone to overspending and budget blowing habits are more prone to fall into the rewards card trap. Conversely, budget-conscious consumers will not deviate from healthy spending habits. They will stay on budget, while still racking up the points, making any rewards card a real rewards card.
The rewards card is a thrilling and dynamic resource for consumers, as long as it is handled with care. The best ways to use your rewards card to your advantage is to use the card to pay monthly bills, complete grocery store purchases, and not think about the “rewards” until the end of each month. Many banks will also offer double cash back rewards when shopping with individual merchants. As long as those points fall on point with your budget, this is a fantastic way to make your rewards work for you. On the last day of the month, check the balance in the rewards account and redeem the cash. Invest the money earned in the rewards program or put the bonus money in a high yield savings account. It’s your money, and it’s your job to use it wisely. Changing your relationship with spending will, in effect, change your life.