|To earn more benefits to each purchase you make, you should use your card and earn credit card rewards! Read this post to find out how it works.|
Credit card rewards can be a gateway to earning income passively. Credit cards offer different options for you to maximize every purchase you make. There are pitfalls, however, and jumping into credit card ownership could be your financial downfall should you not be careful. You shouldn’t worry though. The more you understand how credit cards work, the less likely would you find yourself in trouble.
The Downside to Credit Cards
You normally wouldn’t discuss the cons to something so early on. It is important, however, to understand first the effects of mismanaging credit card debt as they can be brutal. Problems arise when an owner could no longer afford to pay off his debt.
As bad as it sounds, credit card companies make more money when you’re unable to pay in full. The late fees alone can make you regret ever signing up. Then there are annual fees—which are, thankfully, no longer that common in some areas—and interest. Also, stay away from dubious reward programs. Have someone help you better understand how a company’s rewards system works to see if they truly are treating you fairly.
There is a golden rule in credit card ownership and as so long as you follow that rule, you should be okay: Pay for everything in full. As long as you do that, you’ll be free from fees and continue earning credit card rewards.
Reward Points vs. Cash Back
Get used to hearing both terms. As you shop around for a credit card, you’ll likely hear them over and over. But what are the differences between the two?
The reward points are typically worth one cent for every dollar spent though there are exceptions depending on the company’s discretion. While that does seem unimpressive, this can earn you enough points to score free airline travel or exchange them for something useful. Think of reward points as something you could use to pamper yourself.
Cash back, on the other hand, is exactly as advertised. You get some cash back after making some purchases. The mechanics of how this works can vary but essentially, they’re all the same. There is a ceiling on how much you can earn through this program though.
Forbes has written a lengthy article discussing the differences between the two. You can read the article here.
Should I Own One or Two Cards?
That’s entirely up to you. Those who are more familiar with these credit card schemes have always opted for two, maximizing their chances of earning back by subscribing to both programs. It would also depend on your lifestyle. Some cards cater to those who fancy dining out while others lean more towards individuals who make everyday purchases like groceries and gas.
If you think having two cards for different sets of activities would be beneficial to you, then own two. Just keep in mind the golden rule.
Image from Pixabay.