Be honest with yourself: How many times have you considered applying for a new credit card because it comes with a generous sign-up bonus? You may not have followed through, but it was still tempting.
Card issuers offer introductory rewards to encourage people to open an account. These rewards are typically some of the best reasons for getting a new card. Earning them is easy — you just need to meet a specific spending amount or some other small requirement — and they can amount to significant savings.
Whether it’s cash back bonuses or extra travel points, there’s plenty of reasons why you would want to get a new credit card. But if you aren’t careful, even the most lucrative sign-up rewards can end up hurting you.
So if you’re considering a new credit card for the sake of its introductory bonus, The Motley Fool shares a few mistakes to avoid.
1. Spending More Than You Usually Would
One of the most significant risks that credit card bonuses pose to cardholders is that they encourage you to spend. It’s easy to justify spending more than you should or buying something you don’t need just because you’re that much closer to reaching a bonus.
It’s important to remember that the purpose of credit card perks is to save you money. If you’re changing your spending habits just to earn points, you’re not doing yourself any favors. Instead, you can meet the minimum spending requirement by using your card for daily or monthly expenses.
If the spending requirement is high, you could wait to get a new credit until you have more expensive purchases approaching. After all, you’re going to need to cover those purchases regardless, so you may as well use them to contribute to your rewards.
2. Taking On Debt
Going into debt for the sake of a welcome bonus is even more detrimental than making unnecessary purchases. While a generous bonus may benefit you at first, future interest payments will quickly offset it.
If you have to make purchases you can’t afford to meet the minimum spending, this bonus is not for you. Rather than opening a credit card with an unfavorable sign-up reward, opt for one with a lower spending requirement.
You can find any number of credit cards with generous sign-up rewards and spending requirements that are better suited for you.
3. Not Meeting The Spending Requirement
If you don’t meet the minimum spending requirement, you won’t qualify for the bonus. It’s vital that you monitor the minimum amount, how much time you need to reach it, and which purchases contribute to the requirement (balance transfers and cash advances usually don’t count).
Depending on the credit card company, some types of purchases may be ineligible, too. For instance, purchases that the issuer classifies as “cash equivalents,” like using a payment service to transfer money or purchasing a prepaid debit card, may not qualify toward your goal.
4. Canceling Your Credit Card Within A Year
Closing your credit card account shortly after earning a sign-up bonus is a big no-no to credit card providers. Some companies like American Express will even revoke your reward if you do this.
Nothing is stopping you from exchanging your rewards immediately so that you don’t lose them, but the card provider will most likely reject your future credit card applications. So if you don’t want to burn any bridges, keep your account open for at least a year.
5. Trying To Earn Too Many Bonuses At Once
There is such a thing as too much of a good thing when it comes to credit card rewards, especially if it means overextending your finances to reach them. It can be tempting to try and earn multiple sign-up bonuses, but many experts warn against this.
After all, more rewards also means additional spending requirements to monitor and meet. If you don’t meet one, that bonus is gone — and so is the money you spent trying to reach it. And since chasing multiple bonuses requires spending more, you have a higher chance of overspending or falling into debt.
But this isn’t to say earning several sign-up bonuses is impossible. If you have a plan and are responsible with your money, balancing multiple cards is possible. But it’s also challenging. Your best bet is focusing on earning one reward at a time.
- Daly, Lyle. “5 Costly Sign-Up Bonus Mistakes to Avoid When Getting a New Card.” The Motley Fool, 14 Nov. 2020, www.fool.com/the-ascent/credit-cards/articles/5-costly-sign-up-bonus-mistakes-to-avoid-when-getting-a-new-card/.