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Is your rewards credit card costing you big bucks?

If you don't want your so-called rewards credit card to cost you money, be sure to consider the following before signing up for your next card.

By MSN Money Partner Jan 6, 2014 11:58AM

This post comes from Allison Martin at partner site Money Talks News.

Money Talks News on MSN MoneyA few months back, you signed up for this brand spanking new shiny piece of plastic that was supposed to give you a ton of benefits simply by using it responsibly. But somehow, it has ended up putting a dent in your wallet, and you can't seem to figure out why.

Stack of Credit Cards © Fuse, Getty ImagesUnfortunately, this is all too familiar, as people sign up for rewards credit cards without understanding how they actually work or failing to evaluate whether the costs will outweigh the benefits.

Sound familiar?

If you don't want to fall victim to this trap, be sure to consider the following before signing up for your next rewards credit card:

Annual fee

Because your card will more than likely be accompanied by an annual fee, it is wise to determine if you will be able to accumulate enough rewards to absorb the cost.

You should expect to pay some sort of fee for the incentives you will be receiving. However, you may be able to find a card with no annual fee for the first year, or even negotiate with the creditor to have it waived.

Also, bear in mind that if you obtain a card solely for the signing bonus, you'd better make sure it has something to offer once the introductory period has lapsed, as the annual fee will not be going away any time soon.


Many creditors offer discounts through both affiliated and nonaffiliated retailers. For example, when Discover cardholders make purchases through the ShopDiscover online marketplace, they are eligible to earn cash-back bonuses between 5 percent and 20 percent on select purchases. The MasterCard MarketPlace offers a wide range of discounts on items purchased through its site from a number of retailers.

Saving money can be very beneficial, but only if you have adequate cash on hand to cover the items you would like to purchase. If you plan to finance the purchase, you'll be paying interest on the debt.

Hidden restrictions

Not all rewards programs are created equal. In fact, many have restrictions that limit the amount of points, miles or cash back you can receive.

On the other hand, you may have to meet a minimum spending limit associated with an introductory offer to receive the full benefit. Also, select benefits may not be eligible for rollover and may expire if not redeemed within a certain period of time.

Blackout dates are also common among airline miles programs, and some creditors will forfeit any balance you have accumulated if you miss a payment or close your account.

Rotating categories

Creditors often use a tiered system to calculate the amount of awards you can accrue on an annual basis, which is based on distinct categories such as food, travel and gasoline expenditures. However, these percentages may change quarterly, and if you do not stay abreast of the changes, you can easily miscalculate your earnings or miss out on increasing your rewards.

Other costs

There are miscellaneous costs associated with rewards credit cards that you should be mindful of or they could end up costing you big time. These include, but are not limited to, dormancy, paper statement and late-payment fees. If you accumulate a $35 fee as a result of a late payment and your standard annual fee is $150, that certainly reduces and potentially eliminates or exceeds the value of any rewards you've earned.

Annual percentage rate

It’s essential that you avoid carrying a balance on a rewards credit card. The interest rate on rewards cards is generally higher than on other credit cards, and your interest payments can quickly outpace the benefits.


What good is an airline travel card if you fear flying? The point I'm trying to make is simple: If the rewards offered by the card are lucrative but do not appeal to your interests, you will probably end up paying an annual fee without realizing any benefits.

Rewards credit cards can definitely be worth the perks if evaluated properly beforehand and used responsibly, but there’s no point in having them if they will never leave your wallet.

More on Money Talks News:

Jan 6, 2014 1:48PM
What a loser. Your lack of responsibility is not a problem with the card.
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