How Credit Card Reward Plans May Push Canadians Deeper into Debt
Canadians love to collect points through various reward programs. These days there is certainly an abundance of different platforms available in which you can collect and cash in earned points for prizes, discounts or freebies. It is not uncommon for people to put all their spending on different credit cards so they can earn air miles for fun, exotic trips. Some people have even perfected the craft of bouncing between different credit card deals and opening new accounts so that they can reap an introductory reward.
While the game may sound fun in theory, and you might even enjoy a discounted vacation or $5 off from your favourite coffee shop–what happens when reality catches up and you can no longer make your payments? Are these points really worth your while or are they incentivizing bad spending habits?
Understanding the Credit Card Point System and Its Dangers
Gambling with your credit is dangerous. Once you take the time to understand how businesses get credit card point systems to work, you will see how they can actually get you further into debt than you thought was possible.
Rewards or Risky Behaviour?
For most rewards systems, you have to spend money to earn up points. There may be certain thresholds that must be attained to “cash” in points for a “reward” in the form of cash back, points, or miles. The more you spend, the more points you collect. There may be increased incentives to put more purchases on your card to double the points you receive. The instant gratification of receiving an award or points can actually set off dopamine in your brain which can lead to habit-forming behaviour.
Don’t Get Seduced by a Dangerous Reward Systems
Perhaps the most significant threat for Canadians is not understanding how the system works and that it is designed to get the consumer to spend more money with these point incentives. For example, the term “cash back” does not necessarily mean you will get actual money. It may be in the form of statement credits.
The real problems occur when you try to game the system by making unnecessary or lame discretionary purchases so that you can earn extra points or cross a new rewards threshold. If you are in a financially stable situation and can budget to afford to pay off your statement each month, then you have been diligent in handling your financial affairs and control your debt.
If you are not able to pay off your balance one month, then like all credit cards, interest accrues and you will owe more money in the long run. If you cannot make that month’s payment, you also risk losing all of your points as some card companies may take them away. In short, you can be faced with avoidable credit card debt, interest, and late fees with nothing to show for it.
Take Charge of Your Financial Future – Get Help with Spiraling Debt
You can stop the spending-for-points cycle when you recognize the problem and decide to take action. To begin we suggest:
- Quit cold turkey. Lock them up, freeze them in a block of ice, or cut them in half! It does not matter how, but it is imperative that you cease running to your plastic cards to make a purchase.
- Take a hard look at the fees and interests. When was the last time you stopped and looked at the interest and fees you have paid over the course of a year? It might come as a big surprise when you find that your interest payments might be bigger than the size of your last purchase.
Properly Cancel Your Credit Cards
Cancelling your credit cards is not hard, but there are some steps you can take to help get it done correctly. It is important to remember that cutting up your card, letting it expire, or not using it will not cancel your account. Ignoring your debts never makes the situation better – it will only make it worse:
- Contact the card issuer as listed on your card, statement, or their website. Ask them to close your account.
- Ask them to send you confirmation in writing that it is closed.
- Look at your statement even after closure for transactions.
- Verify the closure on your credit report after about 30 days.
- Follow up immediately if necessary.
Contact A.C. Waring & Associates Inc. in Edmonton
We understand the stress that comes with indebtness, and our team is ready to help.
Talk to us about debt solutions when you call the debtfree® professionals at A.C. Waring & Associates Inc.