Pitfalls of paying plastic

And here's why you might want to be cautious about paying all your bills with credit cards:

  • Charges can affect your credit. If your monthly charges put you close to your credit limits, you could harm your credit scores. "Credit card purchases push up the amount you owe compared to your available credit," Weston says. "And that can be bad for credit scores. To have good scores, you need your credit utilization to be below 30%; below 10% is best." If you're applying for a mortgage, a car loan or insurance, you probably don't want to be spending a lot of money on your credit cards just for the rewards, Harzog agrees.
     
  • Plastic is easy. People tend to be a little more lax about their spending when they put purchases on their credit cards rather than paying with cash or a check. "When you're standing at the register, you should ask yourself: 'If I were paying for this in cash, would I still buy it?' If the answer is no, reconsider," Stubbs says.
     
  • You need to be more diligent. You must check your credit card statements with extra care to catch any problems. Most people tend to be more casual about checking their credit card statements than they are about checking their bank statements or balances, Stubbs says. If you're not careful, you could be billed for a service you're no longer getting, Weston says.

  • The rewards can change without notice. You may have your eye on a great reward -- a free vacation or a free flight -- and before you have saved enough points, the program changes and it's no longer an option. There's not much you can do about that, Harzog says. Studies show that about a third of rewards points get tossed in the trash, she notes. If you're putting all your bills on your credit card for that special reward, keep track of your balances and don't let them expire. Harzog keeps track of her rewards with a spreadsheet, just to be safe.

Settlement could change landscape

Thanks to the recent settlement in the government's antitrust lawsuit against Visa and MasterCard, retailers can charge higher prices to customers who pay with credit cards.

It's not yet clear what impact, if any, the surcharges will have on credit card usage and rewards points.

The settlement requires credit card issuers to temporarily reduce the interchange (aka swipe) fees they charge merchants for processing credit card transactions. Credit card issuers also can negotiate collectively over future interchange fees.

Weston sees two possible scenarios as a result: Credit card issuers could make their rewards programs less generous to make up for their loss of interchange fees. Or they could try to improve their rewards programs to prevent people from switching to other payment methods because of the surcharges for using them. Weston says it's too early to tell which is more likely.

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