Last issue we talked about zero percent financing.  Now, I want to talk about the benefits of ‘rewards cards’. You know, those credit cards that offer cash back bonuses, airline miles or other rewards that accumulate with each purchase.

Get the facts to determine if rewards cards are right for you.

Annual Fee and Interest Rates

First, rewards credit card generally have an annual fee and a higher interest rate than non-reward credit cards.  You have to be absolutely certain that you will pay your balance off each and every month in full or the reward won’t be worth it.

Can You Use the Reward?

Nothing is worse than carefully accumulating points for a year, only to find you can’t use the reward.  Ugh!

You need to find out what rewards are available, how many points and/or miles are needed, what are the exclusions?  I was just reading an application for someone and for 25,000 points, they could get a free coach airline ticket valued at up to $400.  That seems great on the surface, but what does that actually mean?  Can you book that reward when and where you want to use it?  How much do you have to charge to earn those 25,000 points?

If you were a part of my Nearly Free Travel Group, you know that we don’t have an airline miles rewards credit card.  We earn our miles in more direct ways.  We used to have several different types of rewards cards (airline miles, cruise points, etc.) but not anymore. But with everything in life, this is a choice we made.  You may want to choose differently.

The Terms and Conditions

So what should you look for?

• How the interest is calculated – single or double cycle billing?
• How long is the grace period?
• What percentage is the minimum payment (typically 2 to 2 ½ %)?

Take your time and ask questions before applying. Make a pros and cons list – does it work for your future plans and current spending habits? To start your research, go to Nerd Wallet’s Best Credit Cards of 2015 for a comparison chart that will help you determine if a rewards card could benefit you.

My credit cards have been with me for years – my oldest was opened in 1987. They were there for me when I had unexpected car repairs, unfinished holiday shopping lists, uncovered medical expenses, a slow month in business, and the times when our money ran out before the end of the month. They have gotten me through good and bad financial times, just like old friends.

But, about ten years ago, I came to the conclusion that my cards were helping themselves more than they were helping me. When I relied on them for emergencies, it meant paying interest on the entire balance for an unforeseeable amount of time.

Here’s a common example of credit card debt:

I want you to look closely at the last 3 columns. Look at how much you’ll end up paying and how long it will take! That should scare you into taking a break from using your credit cards. I know it did me!

Once you get behind in your bills, it becomes a never-ending cycle of taking out debt to pay debt. You worry yourself into sleepless nights and your whole paycheck goes towards past expenses instead of current wants and needs.

Today is the day to make a resolution to stop your credit card debt and take back your financial independence.

This step is the scariest, make a list of all your credit card debt (you can include other debts as well).

The list should look something like this:

You can tackle paying off your credit card debt in one of two ways. 

Save money by paying the highest interest rate card first.

The first way is to pay the credit card with the highest interest rate off first.  Pay every penny you can above the minimum to get it paid off as soon as possible.  There is a box on your credit card bill that tells you how much you have to pay each month to pay the balance off in 3 years – aim for that or sooner.

Once that card is off your list, pay off the next highest interest rate credit card until all cards are paid off in full.

Get satisfaction quickly by paying off the lowest balance first.

Sometimes we need to see physical evidence that our efforts are working to stay motivated. If you need encouragement, then pay off the lowest balance first, then work your way to the highest balance.  You’ll get satisfaction as the low balance cards drop off your list.

Either way, you need to stop using your credit cards for emergencies and monthly expenses, and make a plan to pay off your debt once and for all.