IT’S that time of year when credit card promotions or advertising are quite prevalent.

But it’s also the time of year when credit card debt can skyrocket. Be wary of the cash-back credit cards! Misuse of these cards can prove problematic and expensive for consumers. Seniors, in particular, need to avoid making expensive mistakes.

A poll done by US-based personal finance company Nerdwallet revealed that 28 per cent of US shoppers who used credit cards to buy gifts last year are still paying for purchases made. Locally, I have spoken to several people who have expressed concerns about managing their credit card debts. They have not paid off credit card purchases made a year ago. Paying the minimum balance has kept them chained to debts incurred for more than a year.

Cash-back reward cards are offered by some financial institutions as an attractive credit option that rewards consumers with a percentage of their spending. Some cash-back credit cards offer a five per cent cash-back on purchases. However, consumers should practise restraint regardless of the type of credit cards that they have. There is a misconception that cash-back reward cards are the best cards for consumers because they can save money while shopping.

But cash-back reward cards usually carry very high interest rates. In Jamaica, cash-back reward credit cards carry interest rates of 42 per cent and higher. Getting back cash after each purchase may seem tempting and exciting, but if the full purchase is not repaid in the month of the purchase, the consumer will soon realise that the high interest rate will wipe out the value of the cash-back reward. These cards, if managed properly, can help improve consumers’ credit scores. Consumers should recognise that cash-back reward cards are designed to increase spending. It is, therefore, recommended that consumers be prudent because the misuse of these cards can damage your credit rating.

Credit cards are liabilities and not assets; they don’t build wealth, except for the credit card companies.

The Millennials and Generation Z are being courted by financial institutions for the coveted cash-back reward credit cards. According to a 2024 holiday shopping trend survey done by Shopping App, 80 per cent of shoppers intend to benefit from cash-back rewards when making purchases for the holidays.

Another survey by e-commerce company, Forter found that nearly 80 per cent of millennials and Generation Z reported that loyalty programmes influenced their decisions concerning shopping preferences as well as the most suitable payment method for goods and services purchased.

The challenge that consumers face with cash-back reward cards during the holiday season is the temptation to overspend because of the promised cash back. A credit card is not a substitute for a budget. The best way to manage or control debt and spending is to have a budget. It is a financial plan that guides your spending, saving, investing, and borrowing and keeps you on track with your financial goals.

Cash-back reward cards though provide great opportunities for consumers to save money while spending can easily increase the debt load if spending goes unchecked and payment deadlines are missed. Careful monitoring is required. The key to effectively using cash-back reward cards is to repay all balances in full each month. Consumers who do not pay off monthly balances are at risk of high interest rates outweighing any benefits that can be derived from cash-back rewards.

Consumers who dine out often may consider using cash-back cards. Cash-back reward cards are often used at gas stations. Analysing your shopping interests and buying patterns is important when considering a cash-back reward card.

I encourage consumers to read the fine print of their credit card agreement, particularly those that offer “free money” or travel points. Some credit card companies offer introductory rates to lure consumers into spending more. When the rates eventually increase, consumers can find themselves facing mounting credit card balances. It is costly to carry credit card balances on cash-back reward cards. Make paying monthly purchases in full a financial habit to avoid credit card debt ballooning. This point must be underscored. Though some cash-back rewards cards offer five per cent cash-back rewards, some cash-back credit cards have an annual cap on purchases. Reading and understanding the fine print is to the consumer’s advantage or benefit when choosing cash-back reward cards. There are also cards that limit cash-back rewards to certain types of purchases, like dining out.

I recommend that more consumers become investors. The credit card companies create wealth for themselves by offering various perks to consumers. Why not invest in the credit card companies as shareholders? Be owners of assets that have proven to increase in value over time. Owning even a small slice of a credit card company will be more beneficial than any cash-back reward over the long term. I am only too happy to share a cost-effective approach to owning shares in these wealthy credit card companies. Why not give the gift of stocks this holiday season? Author, Christopher Parker said, “Procrastination is like a credit card; it’s a lot of fun until you get the bill”.

Grace G McLean is a financial advisor and retirement specialist at BPM Financial Limited. Contact her at gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at livingaboveself@gmail.com