A very rewarding topic, if ever I saw oneSep 4, 2004 Write an essay on this topic.
The Bottom Line …
It seems that everyones offering some kind of reward card these days. The first time I had heard of it was when the gas station chains started offering theirs. The deal was that if you made purchases with their card, you earn free gas based on how much you spent. Then, others started. Some offer frequent flier miles. Waldenbooks offered one that was tied to their customer-loyalty card. Some banks offer programs where you earn points that are redeemed from a catalog. The cards tend to be Visa or MasterCard, which can be used anywhere. This makes it easy to rack up points. It would seem that youre getting paid for something you already do.
Credit cards are like casinos. Both are business looking to make money for themselves. Banks that issue credit cards are looking to make money from you one way or another, and cards with rewards programs are no different. Usually, this is accomplished with interest. Most people that use cards dont pay down their interest, and the interest is just more money for the issuing bank. Also, merchants who accept credit cards are charged a fee for every transaction where a credit card is involved. (You may notice in your area that debit cards are becoming more popular. This is why.) There are also annual fees that are charged by banks, which are another way that they make money.
The trick to getting a reward card is not paying for anything that you wouldnt pay for anyway. This means getting a card that has no annual fee and always paying down your balance immediately. Every time you pay interest or an annual fee, youre essentially giving back some of those rewards youve earned.
If you can do this, then the next step is discipline. I know people that get a reward card and spend like crazy, making purchases that they would not normally have made. This is bad. This is what the banks want. Not only are they getting those per-transaction fees, but youre spending money you wouldnt normally have spent and youre increasing the odds that youll carry a balance. However, there are those that put their grocery bills, utility bills, car payments and any other usual expense they can onto the reward card. These are expenses that the people would have had anyway. One of the pitfalls of having a credit card is mistaking it for extra income. If you can pay your balance off as soon as you get the bill, the rewards will add up and youll have a minimal expense if any.
One alternative to a reward credit card is a reward debit card. The only place I know to get this is through PayPal. They offer a debit card that has 1.5% cash back, but there are restrictions. I believe that you have to sign up for a business or premier account, which means that all incoming funds from another PayPal user or a credit card transaction are charged. (You cant charge someones credit card at all with a regular account and, like I said, charges are normal for that sort of transaction.) Transfers from your bank are still free. The other major restriction is that you have to list at least one item on eBay every three weeks where the only method of online payment is PayPal. Sure, you can add the cost of the listing and the transaction into the listing price, but its an inconvenience to have to list every so often. You also have to transfer funds in from your bank to really make anything. The good news is that I got over $2 back on the purchase of a stereo.
The one thing I can definitely recommend, whatever you decide to get, is to read the fine print. Like I said, the banks arent in this for their health.
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