Are Credit Card Points Truly “Rewards” or Are They Costing You?

Dangers of Using Credit Card Reward Point Programs

Credit card points and reward systems are used as incentives by the vast majority of credit card providers, but are they really a “reward” or are they just costing you money?

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What are credit card points?

When researching credit cards, the three most common forms of credit card rewards are miles, points and cashback.

Cashback credit cards are quite self-explanatory, offering you a percentage of money back on your purchases which is then added straight back onto your card balance.

Points credit cards, on the other hand, can be a little more tricky to understand.

Generally, points credit cards work by offering you a set number of points per $1 that you spend, but this can vary hugely between providers and even from transaction to transaction depending on the partnerships that the credit card company has with certain retailers.

You can also earn credit card points by hitting certain spending targets within your first few months of card ownership, and some providers even hand out points for referrals to friends and family too.

How are credit card points used?

Credit card points often work in much the same way as loyalty card points for your local grocery store.

Your points balance builds as you spend, and can be redeemed for cash value when you reach a certain threshold.

How much your credit card points are worth when they are converted to a cash value and where you can redeem them does vary depending on your provider, so it’s always best to read into your terms and conditions if you are unsure.

Are credit card points really a reward or are they costing you?

As with all types of credit card rewards, including air miles, cashback, and points, it’s important to remember that you have to be willing to spend money on your card to earn them.

Reward-based credit cards aren’t handed out by credit card companies out of the goodness of their heart but are designed as an incentive so that you choose their company over one of their competitors and then spend money on your credit card so that they can earn a profit through the interest that they charge you.

The problem with reward-based credit cards

Having lured you in with the offer of cashback, air miles, or points, reward-based credit cards can end up costing you money rather than helping you to save it.

Here are some of the biggest problems with reward-based credit cards:

They make you spend in order to earn

Perhaps the most obvious way that your points credit card is costing you money is that you physically have to spend money in order to earn the points.

Many credit card companies incentivize their users by putting high points bonuses at certain spending brackets such as 5000 points for spending $2000 in the first two months.

This tactic persuades people to spend big on their credit card during the first few months of ownership, often racking up a sum that they will struggle to pay back and ultimately increasing the amount of interest that they pay on their purchase.

Even the very best credit card reward schemes still require you to spend money to redeem them.

The interest effectively neutralizes the value of the points

By offering multiple points per every $1 spent, credit card companies can trick people into thinking that they have racked up a substantial cash value when in reality, each point earnt is nowhere near equal to the $1 that they have spent.

Having made a big purchase and earned their bonus points, the credit card user is then hit with the interest on their purchase which effectively neutralizes any monetary value from the points that they have earned, rendering their reward useless.

Watch out for high-interest rates on reward-based credit cards and always aim to pay off your balance quickly if you want to see any benefit from your reward.

They encourage impulse buying and uncontrollable spending

The psychological effect of reward-based credit cards can also lead vulnerable people into debt.

Offering people rewards on their spending effectively turns a credit card into a game and actively encourages people to impulse buy things that they cannot afford in order to reach point milestones that offer them very little benefit.

Making credit card rewards work in your favour

In the wrong hands, reward-based credit cards can be disastrous, but when used carefully and correctly, they can be a valuable financial tool.

Here’s how to make credit card rewards work in your favour.


  1. Only use your credit card for transactions that you were going to make anyway, regardless of the rewards that you could earn.
  2. Pay off your credit card balance as quickly as you can by paying more than the minimum monthly repayment – this stops you from paying too much interest.
  3. Remember that credit card rewards can affect you psychologically, and to stop spending if you can no longer afford it.


Getting out of credit card debt

With attractive signup offers and the promise of big rewards, it’s perhaps unsurprising that many people find themselves in credit card debt when using reward-based credit cards.

One credit card can quickly lead to two or three and before you know it, you have racked up a debt that you cannot afford to repay and are beginning to fall behind only our minimum monthly repayments.

Getting out of credit card debt may seem impossible, but it is achievable, thanks to the range of debt-relief services that are available.

Whether your debt is big or small, here at Bankruptcy Canada, we can help you to find the service you need to clear your debts.

We can connect you with one of more than 430 Licenced Trustees who are ready and waiting to listen to your financial situation and to guide you through the appropriate debt-relief process.

To find out more about what we do or to be matched with a local Trustee in your area, call us today on (877) 879-4770 or fill out our online form.

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