When you go on a shopping spree, out to dinner, or even for a night out on the town you will in all likelihood attempt to take advantage of deals and build up rewards.  While paying through cash or debit can keep you from overspending beyond your means, the best way to accumulate rewards points is by using your credit card, specifically a rewards credit card.

The great thing about rewards credit cards is that they provide you a rebate on every purchase you make.  For example, you head out to a nice restaurant for dinner, enjoy a full course meal with all the trimmings, and whip out the credit card when the bill arrives.  Once you pay the balance, a portion of the balance that is typically between 1 and 2 percent is redeemed in the manner of rewards points or even cashback depending on your credit card.  These rebates make rewards credit cards appear invaluable for the average person, especially if you are attempting to build your personal credit.  Rewards credit cards after all, encourage you to spend.

However, just as the incentive to spend can be seen as an asset, it can just as easily be turned into a liability.  You may find yourself more focused on collecting rewards for any and every type of purchase regardless of whether you need the product or service you are buying.  You spend and spend until your budget is stretched well beyond your means, which instead of helping you build your credit, actually erases your credit score.

The annual fees on rewards credit cards can be as much as $100, which is a lot of extra money to spend if you are young with little savings.  In addition to the expensive annual fees, the interest rates charged upon outstanding credit card balances can increase the amount you owe to even more unaffordable levels.  The catch of rewards credit cards is that the reward comes from finding a balance between spending and restraining, building credit and limiting expenses.

Before you acquire a rewards credit card or even if you have one but are unsure how to best capitalize on its benefits, you should speak with a credit councilor.  Councilors act independent of credit card companies, and analyze your unique financial situation dispassionately before suggesting the best credit card, reward or otherwise, that fits your needs.  A councilor may also advise you to compare credit cards, their corresponding interest rates, and any of their associated rewards plans by using the internet.  This way, you can view offers from a variety of providers, and select the best credit card available.

The right credit card is especially important if you are someone who likes to shop, or prefers eating out on a regular basis.  While it’s great to indulge yourself, you want to ensure you don’t get too far in over your head.  Once you are secure that you have the right card, you can sit back and enjoy your nights out with a clear head – and a good credit score.

Melissa Batai

Melissa Batai

Melissa, a mom to three little ones (ages 7, 3 and 1), blogs at both Mom’s Plans where she writes about living a fulfilling life on less and paying down debt, and Fiscal Phoenix where she writes about rising from the ashes of your financial mistakes.