The benefit of paying for expenses with a credit card is that you can earn cash back or bonus points, which essentially makes money free. But there’s another way to earn extra points or cash back: by getting a welcome offer or sign-up bonus.
Credit card companies offer sign-up bonuses to attract new customers, and usually, just by spending a certain amount within a certain period of time after opening your new card, you can earn a lot of cash back or extra miles that can be redeemed for free or discounted travel.
But while credit card welcome offers are great in theory, you should be careful when looking for them. Here are three mistakes to avoid when taking advantage of credit card bonuses.
1. Signing Up at the Wrong Time
The risk with credit card welcome offers is that they can lead to overspending. You can offset this risk, however, by signing up when you expect to spend more than usual. However, signing up at the wrong time could mean missing out on a welcome offer you’d like to receive.
Let’s say you qualify for a welcome offer that gives you $150 if you spend $3,000 on your credit card within the first three months of opening your account. If you typically spend only $600 a month on your credit card, you’ll likely end up with much less than $3,000 unless you have a big purchase coming up soon, like new furniture or a vacation.
But if you typically spend $600 a month on your credit card, excluding December, when you typically spend $2,000 on holiday gifts and travel, you’ll want to apply for the offer within the first three months of opening your new account so that December hits.
2. Accept Offers That Put You in Debt
If you normally spend $1,000 a month on your credit card, it’s not that hard to spend $3,000 in three months. But if you normally spend $600 a month because you can afford it, or $1,800 in three months, forcing yourself to spend an additional $1,200 in such a short period of time could put you in debt for your spending.
This debt can hurt you in a number of ways. First, you risk accruing interest on your balance, which can eat into (and potentially wipe out) your sign-up bonus.
Secondly, carrying a high credit card balance relative to your total credit limits can hurt your credit score, which can make it harder to get further financing or mean a higher interest rate on your next loan.
3. Don’t Look for a Better Offer
When you receive a welcome offer for a credit card, it’s natural to want to take advantage of it. But sometimes it’s worth waiting until a better deal comes along.
Opening too many credit cards in a short period of time can affect your credit score. Plus, if you’ve recently opened several other new accounts, you might be denied a card you’d normally get. So before you jump on a credit card sign-up bonus, compare offers to see if you can get a better deal.
You might like the idea of getting $150 cash back if you spend $3,000 within three months of opening a new credit card, but another card that gives you $250 back for meeting the same spending needs is a better deal.
Credit card welcome offers are a great way to collect extra cash or earn bonus points. Just be careful how you use these offers.
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