Are Reward Credit Cards a Good Deal?

Q: We collect points on our credit card to help pay for our vacation costs but sometimes it can be hard to use them. I wonder if using points is actually a good deal.

A: Credit cards that earn rewards can be a friend for one, but another's greatest foe. It boils down to how you use credit and manage your household spending.

Here are some things to keep in mind as you choose which rewards to collect and how you earn the reward points:

  • Decide which rewards you want to collect -- cash back, travel points or merchandise discounts are popular choices. Understand the terms for collecting the points and the restrictions for redeeming them. Whichever reward method you choose, make sure that you can earn and redeem points on purchases you regularly make.
  • Many people justify spending a little extra just to get points. If you do this occasionally for a small amount, you probably won't end up in debt. However, many people routinely spend up to 15-per-cent more when they shop with a reward credit card than with cash. This type of spending can lead to large balances that become difficult to pay off. If you're not able to keep your card in good standing, most cards will not let you redeem your rewards.
  • Reward cards are a marketing tool -- they can limit your ability to shop around and find the best deal. "Cash back" programs might not seem as attractive as free flights or merchandise. However, they allow you to maintain more choice in the long run.

As with all credit cards, only charge a purchase if you can afford to pay it off at the end of the month.