Beware of Credit Card Interest Rate Drops
Looks like the big banks across Canada are looking to reduce interest rates on credit cards to provide relief to customers affected by COVID-19 pandemic.
Warning
Let’s just make something clear up front. If you are someone who has no other options than to use a credit card to pay for bills during the crisis, and you are receiving an interest rate reduction, definitely take any options to reduce your expenses in your favour.
Disclaimer
In times where finances are a sensitive topic, we, at Pointshogger, feel that it is even more important now for us to ensure that we get the message across that the miles and points game is for people who are able to pay their balances off in full. It is a way of being “rewarded” (pun intended) for paying off your bills on time and in full each time. The rewards are not designed to help you cover your interest payments.
Pay off Balances in Full (for Miles and Points game)
But if you have been reading our posts at Pointshogger, you will know that we never recommend getting a credit card for the purposes earning rewards if you are unable to pay off your bills in full every month. Any rewards that you could have earned would have been nullified by any interest that you owe. Furthermore, credit card companies have disclaimers that they can refuse awarding you rewards (i.e. miles, points, cash back) if your account is not in good standing (not paying balance on time).
So what I mean by the title is that interest rate drops does not mean it will increase the value of your rewards. For example, a credit card company may drop from 18-20% down to 10%. Even if they cut the interest rate in half, the 10% interest nullified the 1-2% that you generally earn with your credit cards. Even if you earn 5% cash back, it is not enough to cover the interest rate.
If you are new to the miles and points game, I suggest starting here: Pointshogger 101.
Keep on Reading
That being said, we do not want to turn away readers either if you feel that our content can be relevant to you sometime in the future. I see our content like going to school. You may not apply every thing that you learn from school right away, but you can gain the knowledge now, ahead of time, so that when you are ready to go for it, you know what you need to do. That will save you time in the future to do research then.
To be fair, I was in the same boat at some point. When I first turned 18 years old, I was able to qualify for my first credit card. I was unable to get any of the lucrative credit cards that I have today, so I had to start somewhere (can be a topic for another day). But I gained the knowledge ahead of time while I was building up my credit history so that I was ready to move fast on offers that I eventually qualified for.