It is easy to get caught up in the idea of credit card rewards. If you have ever been pampered during an international flight in business or first class, it is easy to justify almost anything in order to avoid economy class in the future. In fact, I sometimes wonder if they purposely treat you worse in economy class in order to sell more tickets in first and business, but I digress.

The Trap

Redeeming a reward is a great way to get something back that you would not of had you paid cash for the reward. As we have shown, the rewards generally range in value from 1% -5% of your purchase depending on many factors. So addictive are these rewards, that some people will make purchases they otherwise would not have, just to receive the them. The credit card companies know this and are counting on you to increase spending in order to justify their reward offerings. If you should happen to be unable to pay off your balance every month and incur interest, so much the better. Even when you do avoid interest payments, the banks still earn merchant fees on your increased spending.

The Ultimate Reward

At the end of the day, the greatest reward is the value of goods not purchased. If you purchase something unnecessary in order to get a reward, you are loosing %95 to %99 of your money. Seen from the other angle, every dollar not wasted returns far more than your reward ever could. By never allowing your reward card to artificially increase your spending, and by paying off your balance ever month, you will have truly earned that cushy seat at the front of the plane.

This entry was posted on Monday, September 29th, 2008 at 23:36 and is filed under Maximize your Credit Card Rewards. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.