Using rewards credit cards for business and family spending ....reward yourself with free travel

Everyone wants to travel somewhere. A huge portion of credit card company income comes from the fees that they charge retailers. To solidify their position as the catalyst for the transaction between those that spend money and retailers, credit card companies came up with the reward incentive. It started with travel rewards but most of the companies that trade in air miles have now signed up other businesses to supply products in exchange for reward points.

The target demographic is mature families with significant disposable income that they spend on consumables. Even if there are other options, people will use their rewards credit card to purchase items. For some collecting the points can become an obsession. For most it is a way to engage in saving. (link to savings acct url) It is nice to use the points to pay for the tropical vacation or the trip back to see family when they are on the other side of the continent or the world. There is a feeling that it is kinda for free.

Businesses and/or those who travel a lot for business can accumulate a lot of points. The reward points can be used to pay for a family vacation to get back in touch with those who they are away from so often. It somehow makes it worth while.

The challenge for these busy families is to make sure that these reward credit cards are managed responsibly. These families are targeted by the credit card companies because of their high incomes. As long as these families make the payments on time, they will be given increases in their credit limit. It is the personal and the family’s responsibility that repayment of the outstanding credit card balance remains a financial goal.

On the balance sheet a family can run up a very large liability on credit cards. It can be argued that the points represent a pseudo saving account. That may be valid and it is like those addressed in the article on the savings tool from the Financial Toolbox. However, it is one of those savings accounts that will be spent on consumer items so it will disappear off of the balance sheet. If you have the liability from the credit card still sitting on your balance sheet after the points have been spent, you have diminished your net worth.

Then you have to designate some of your disposable income…your monthly cash flow… to paying off the outstanding credit card balance. That means you have to reduce some of your other budget spending and divert it to paying off your credit card. Hopefully this is a short term problem but I know some folks that it has taken 5 years of budgetary diligence to pay off outstanding balances.

Financial Therapy requires that you start at the start with and always use the first 3 basic tools…life goals table, your family budget and your family balance sheet. Get them in sync and review them every six months or each year at the least. You will then keep such tools as reward credit cards in line with you hope and your dreams.

Questions? Credit Expert Contact Ask us - We will reply and if it is a really good one we will publish it and its answer in our weekly blog entry. If a lot of folks have the same question we will build an FAQ url or urls on the site.