Pay Attention to Your Credit Card Balance, Not Your Reward Point Balance

Are you obsessed with credit card reward points? You’re not alone. The Financial Post wrote an interesting article on an alarming trend of consumers racking up credit card debt, just to earn reward points.

The numbers speak for themselves: despite of a population of only about 35 million, there are over 70 million credit cards in Canada – that’s at least two credit cards per person (just keep in mind children don’t have credit cards, at least not yet). Of those 70 million credit cards in circulation, around 60 percent of outstanding balances go unpaid by the due date. Many choose just to make the minimum payment, while paying interest charges at over 20 percent.

Paying Interest to Earn Rewards Points Doesn’t Make Sense

In our obsession with credit card points for everything from cashback to travel rewards, a lot of consumers are ignoring a simple fact: if you’re paying interest charges on your credit card, there’s no credit card in the world where this makes sense (at least none that we’re aware of). If you think your credit card reward points will offset the high interest charges you’re paying, think again.

Sadly this type of behaviour is more common than you’d think. Far too many people are obsessed with their reward point balances, instead of their credit card balances. You may have earned $50 in reward points, but is it really worth it if you’re paying $250 in interest charges? By taking the time to do the math, you’ll realize carrying a balance to earn reward points doesn’t make sense.

Consider a Line of Credit Instead

Next to payday loans, credit card debt is some of the most expensive type of debt available. The problem is people can be blinded by the reward points they earn. Cashback and other rewards credit cards typically offer about a one percent return on purchases (sometimes a higher accrual for gas, groceries, or seasonal categories).

With the typical credit cards charging 20 percent or more in interest, carrying a balance just doesn’t make sense. Even though you don’t earn reward points, you’d be much better off with a line of credit with interest rates between 3% and 10% depending on the type of loan.

If you’re constantly carrying a balance on your credit card, clearly there’s a problem. If you’re not able to get your spending under control, it might be best to consider cutting up your credit card. Even though you’ll be losing reward points, you won’t be paying sky-high interest charges any longer.

The Bottom Line

Don’t get us wrong – we love credit card rewards! Credit cards are a powerful financial tool when used responsibly. That means paying off your outstanding balance in full by your due date. Consumers often run into trouble when they swipe credit cards to earn reward points, without worrying about whether they can afford to pay off their outstanding balance at the end of the month.

Remember this: there’s no credit card in the world where carrying a balance is worth the rewards points you’ll earn. The cold, hard truth is that credit card companies are in the business of making money. If it was so easy to earn a profit off of reward points, do you think they would be in business long? Obviously not!