Today is the final email in my one-sentence money tips series. So, we’re diving right in with:

Don’t be thrilled that the credit card you’re paying 22% interest on offers 1% cashback on all purchases.

I’ll keep this one simple.

Credit card rewards may seem great, but they’re not doing anything for you if you’re getting eaten alive in interest every month.

Here’s an example of this in action:

Let’s say you use a card with a generous reward program, spending about $1200 a month on the card – using it for groceries, gas, subscriptions like Netflix, and other miscellaneous purchases. A ‘decent’ rewards program will give you something like $450-500 a year in rewards once you factor in the annual fee to carry it.

Seems good, right?

But — what if the following was true:

  • The card limit is $10,000
  • The interest rate is 22%
  • You hover very close to your credit limit
  • You make payments of $500 per month

Well, my friend, you’re paying just $316.67 towards your principal and $183.33 towards interest!

Suddenly, rewarding you with under $500 a year doesn’t look so great, does it?

When it comes to credit cards, one thing you must never forget is that credit card companies are not your friend. They offer small minimum payments to get you paying the lowest amount possible so that you’ll keep paying interest longer. It’s that simple.

Adding rewards to a card is just another carrot to dangle in front of you, so you’ll choose that card to pay interest on, not another.

If you’re going to use a credit card to collect rewards, always (always) pay off the balance in full every month to nip accruing interest in the bud.

If you feel like breaking the minimum payment cycle feels impossible, I want to hear from you. Book a free 15-minute chat by calling 513-563-PLAN (7526) (or click here to book online) – we can develop a strategy that will help you keep more money in your pocket now and for your whole lifetime.

Nikki Earley, CFP®