I Discovered the Downside of Credit Card Rewards

Don't let the promise of points trick you into spending more.

Do you read all those great articles about traveling for free or close to free? Me too. Most impressive to me were all these stories about families traveling by using miles they earned as rewards for using their credit cards. They made it look so easy. Surely I could do the same.

So while traveling to San Juan, Puerto Rico, last year for our southern Caribbean cruise, American Airlines offered a credit card sign-up bonus of 50,000 miles if I signed up for a credit card during the flight. While there is usually a catch — like spend $5,000 in the first three months or some similar requirement, which has stopped me from applying in the past — this offer only required a single purchase with no minimum within the first month or so. Super easy. I happily completed an application while dreaming of my free trip to someplace exotic and far away.

Learn: How to Use Credit Cards Wisely

How Using Credit Cards to Earn Rewards Can Go Wrong

Because of all the hard work I have done to clean up my credit history and recover from my past financial errors, I have a healthy appreciation (and fear) of credit cards. Yes, I absolutely use credit cards, but I really worry about balances getting out of control and having to pay interest. But I also wanted free airline tickets. Why not get something for the expenses I usually have anyway?

Each credit card program offers bonus programs. If I had signed up for the dining program and visited a preferred restaurant, then I would receive more than 1 mile per $1 spent. Unfortunately (though fortunately, it turns out), there aren’t that many restaurants in my area that I would normally frequent on the program, so I have not used it. There is, however, a shopping rewards program that allows you to access specific vendors. While the offers change all the time, purchasing through this porthole rewards you with multiple miles per $1 spent. The program includes several vendors I order from regularly, like Old Navy, Macy’s and Lands’ End.

Do It: Yes, You Can Have a Credit Card and Stick to a Budget

The first two months were great. I was a bit paranoid, so I would pay my credit card multiple times a month to make sure I stayed on top of my regular expenses. Then Christmas came along. I got caught up in the excitement of earning between five and nine times the miles for purchases from certain vendors and lost track of my spending. While I did need a new carry-on bag, I was less motivated by the bag than I was by the thought of earning nine times the miles. The end result is that I have earned a lot of miles, but I’m going to have to pay a high interest rate for the next month or so while I clean up my spending spectacularly.

Be Smarter: I Use These 3 Fool-Proof Strategies to Avoid Credit Card Debt

How to Properly Use Credit Cards to Earn Rewards

Here are some of the lessons I learned from taking advantage of credit card rewards:

  • Only charge what you can pay off: This sounds like a no-brainer, but the slippery slope of charging purchases to your credit card is very steep.
  • Only buy what you would normally buy: Don’t let yourself be swayed by special offers on things you don’t need or that can wait.
  • Keep track of your spending: While I usually track my expenses on Quicken, I got sloppy over the holidays.
  • Set clear goals: It’s OK to earn free trips or other bonuses, but don’t forget your debt-free goal.

Tips: 10 Travel Rewards Mistakes You Need to Stop Making Now

So while I’m still a fan of getting bonuses — miles, dollars, rewards — for my regular monthly expenses, I need to go back to budgeting to make sure I’m not foolishly spending on my credit card. Many of the rewards credit cards have a high interest rate, and I’m not getting something for free if I’m paying interest.

I am back to being on track with my debt-free goal and hope that you can avoid the pitfalls I’ve discovered. And yes, I will take an exotic vacation to a far away destination using my airline reward miles soon.

Click through to read more about surprising uses for your credit card rewards.

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