Question:   Does it make sense to use gift credit cards so I earn award points, rebates or mileage?

Answer:      A great many credit card companies now offer credit card offering various reward options.

After realizing that people get excited about the concept of earning rewards through the use of their card, more and more companies have jumped on the gift bandwagon.

Now nearly every credit card company offers a card with some sort of reward program.

Consumers beware! Gift credit cards are dangerous is the sense that people get so caught up in earning the rewards, they fail to realize how much they are actually spending. The incentive to earn points or mileage seems to override their judgment to stick to a budget.

Surprisingly, many people sign up for card programs that contain rewards they truly have no use for. Whether the reward is a cash rebate, mileage, or gifts through the accumulation of points per dollar spent, it isn’t a good idea to build up a large balance on any type of credit card.

Gift credit cards are only of minimal use when handled properly – and most simply not worth the risk you take in managing them. Unless you have a set method of managing the reward program closely, and you always pay the balance in full every month, it is best to avoid them altogether.

Furthermore, many of these cards are accompanied by a high interest rate. These rates can be as much as 20%, and occasionally even higher.

In addition to the high interest rate, the fine print will often reveal that any interest added to the balance will not apply to the rewards program. Therefore you will find yourself paying extra money and not receiving any reward at all for doing so.

Additional fees are also attached to most reward cards. Late payments and going over the limit are just a few ways to trigger these fees. Just like accrued interest, the money you pay does not count towards a reward.

The lure of gift credit cards is that people believe they are getting something for free. This is far from the truth.

Reading the details in the fine print will show that you must spend certain amounts in order to receive everything that is promised.

Rest assured no company is going to offer any reward program that doesn’t first make more money for the company. They aren’t just being nice to you by offering these perks.

For example, a card will say that for every dollar you spend, you receive one point. This sounds enticing, however, the first reward you can earn is a $25 gift card that “costs” 2500 points. That means in order to earn the gift card you must first spend $2,500.

As tempting as they are, rewards cards are not worth the effort – or the risk. They entice people to spend more than they would otherwise. Don’t allow the credit card companies to manipulate your spending behavior in this way.

» Credit card debt in America is scary. I want out of the debt trap, but can I still have fun and buy occasional extras while paying down my debt?
Credit card debt in America has become a sickness and in order to get well, you need to fully commit to paying off your existing debt as quickly as possible.

» What counts as a credit report inquiry on my credit report and how can I minimize inquiries?
Having too many inquiries counts against you from a lender standpoint. If a lender sees a lot of inquiries they might feel that you are desperate and therefore, not a good credit risk.

» How does debt affect my employment, and will we ever see a debt free America?
If we lived in a debt free America, there would be no such issue or concern. Most potential employers do require you to sign a waiver that allows them to pull your credit report.

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