There are lots of different types of credit card available and it is sometimes a bit confusing knowing which to choose. As we all have different needs with regards to borrowing, then there is not an obvious card which will be the best for everyone. Therefore, you will need to think about your needs when deciding whether a certain type of card will work for you. One example of a type of credit card is a reward card. A reward card might sound really fantastic, but you will need to think about whether it will work out well for you.
What are Reward Credit Cards?
A reward credit card is one that will give you something back for using the card. This might be cashback, vouchers or other things. They do not all work in the same way, but generally you will find that in exchange for spending money using the card you will get things back. So you might get a percentage of what you spend in cash or vouchers. It means that you can actually be paid for using the card which can seem like a really great thing.
Risks of Using Reward Cards
There are risks though. If you get more back in return, the more you spend on the card, it can be very tempting to use the card a lot. This is okay if you are using it for things you were going to buy anyway and perhaps using a card instead of cash or a debit card. However, it could be the case that you are tempted to justify spending more money because of the reward. It is so important to remember that the reward will only be tiny and spending extra money will mean that you are paying out a lot more compared to the very small amount that you get back. Therefore, if you thin that you are the sort of person that is likely to use a potential reward as excuse for spending money on things that you do not really need, then it could be wise to avoid this sort of card.
You may also find that the interest that you are charged on this card, will be higher than other credit cards. This may not always be the case, but often the lender will want to make back the money they are giving away, by charging more for interest. If you do not repay your card in full each month, then you will be paying interest and you could find that you will be paying a higher rate and actually if you went to a lower rate card you would be much better off even if you allow for the rewards that you have been getting. If you intend to repay in full each month, then it could be fine, but make sure that you are confident that you will do this. Set up a direct debit so that the payment gets made automatically and then there will be no risk that you will forget to pay it.
So, you can see that a reward card, can be really worthwhile and it can even give some extra money. However, you do need to be very aware of the disadvantages and make sure that you are confident that you will always be able to repay it in full each month and that you will not be tempted to use it as an excuse to spend more money than you can afford. Make sure you track your spending so that you know that when you need to repay it, there will the money available to do so.