Spend

Millennials are racking up credit card points—here's how that could backfire

Twenty20

Almost 40% of rewards cardholders say they've paid for purchases with their cards just to earn points, according to the annual "Chasing Points" study from Finder.com, a personal finance website.

Finder surveyed around 2,100 American adults about their credit card habits. It found that while Gen Xers spent the most on their rewards cards, millennials are "most committed to racking up loyalty points": 35% of millennials (ages 24 to 38) reported using a credit card for points, compared to the 30% of baby boomers (ages 54 to 74) and 23% of Gen X (ages 39 to 53).

Rewards cards like the Chase Sapphire Reserve and the new Apple Card offer perks like five-figure sign-up bonuses, double cash back on certain purchases and name recognition, but experts warn consumers to be careful whenever they sign up for or use a credit card.

Swiping simply to acquire points could backfire and dig you into debt, Rachel Dix-Kessler, Finder's consumer advocate, tells CNBC Make It, negating any value the points have and hurting your overall financial health. You shouldn't buy something simply because it's included in a rewards category.

"You don't want to open a credit card and not be able to pay it off because you didn't fully understand the loyalty program and then you rack up some debt that you have to deal with," says Dix-Kessler.

It's the really big bold letters that draw you in, but that's why you need to take your time. It's really important to read the fine print.
Rachel Dix-Kessler
consumer advocate, Finder.com

Always read the fine print

While rewards cards can be enticing with their offers of "free" money, they typically have higher annual percentage rates (APRs) and annual fees associated with them than other types of credit cards. That makes chasing points a potentially dangerous game: You could end up spending more than you had planned, the points might expire or be capped or an annual fee could wipe out any rewards you do earn.

"You really need to understand your spending habits," says Dix-Kessler. "Maybe we see a perk and think, 'wow that sounds great,' but there's that fine line of, well, does it really make sense?"

Make sure you apply for the card that's right for your individual financial situation, not a friend or family member's, Dix-Kessler says. Start with one that will give you money back on your most common, non-negotiable purchases, like groceries or gas. If you do not travel often or have a lot of money to spend on traveling, for example, then a travel rewards card might not make sense for you, even if your friend raves about their card.

To find the right one for you, it's important to do your homework and compare cards before you apply. You can check out different credit card offerings on sites like Finder or NerdWallet, or read through the terms and conditions on the issuer's website.

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And remember, just because a card offers perks like a sign-up bonus or access to an airport lounge, that doesn't mean it will pay off for you.

"It can be really easy to be drawn in, it's the really big bold letters that draw you in, but that's why you need to take your time," says Dix-Kessler.

It's also "really important to read the fine print," she adds. For example, while a card might advertise 2% back on purchases, the card's terms might tell you that only applies to certain categories that you don't often spend much money on, or you might find that there's a cap on rewards points and cash back, making the card less valuable.

If the card has an annual fee, try to do the math with your current spending to see if you will earn back more than you are paying for the card. You don't want to have to increase spending in certain categories just to make the card worth the fee if you wouldn't spend that money otherwise.

Finally, rewards cards typically require higher credit scores to qualify than other types of cards. So if your score is average or below average, take time to improve your score before applying. Because part of your credit score is how recently you applied for a new credit line, being denied could temporarily decrease your score further by a few points.

Don't miss: The Points Guy: Stop making these 3 mistakes if you want to maximize credit card points

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