Are My Credit Card Bonus Offers Too Good to Be True?
Credit card bonus offers can be a good way to save money on interest — just make sure you pay off your balance on time.
June 19, 2022
Credit card companies like to throw a lot of numbers and terms at you. Usually, they’re hard to understand.
But you’re probably sure about a few things: You need a new credit card, and you want to transfer a balance to that credit line so you can pay off your debt faster.
But how do you know you’re getting the best deal? What’s the best credit card for your financial goals?
The most enticing perks a credit card issuer will dangle in front of you are bonus offers. From cash back rewards to travel rewards, these welcome bonuses entice consumers to sign up.
While these credit card offers sound amazing, they have both pros and cons. Learn how credit card bonus rewards work and how they can affect your personal finances.
What are credit card bonus offers?
Credit card bonus offers can take various forms, but their ultimate purpose is to entice consumers to open new accounts.
Depending on the credit card provider, you might see welcome offers like:
Introductory interest rates: These are low interest rates that apply to your credit card balance for a certain period. The introductory interest rate is generally applied to balance transfers and purchases made on the credit card. If a company offers you a promotional rate, it must last at least six months. For people with excellent credit, offers can last up to 18 months.
Rewards credit cards: Reward credit cards — like the Chase Freedom Unlimited — allow you to earn points for cash back, gift cards and other perks with their reward programs. These credit cards often extend bonus offers such as 2x points for purchases in certain spending categories, like grocery stores and gas stations. When you collect enough reward points, you can redeem them for a statement credit or cash.
Travel points: Travel credit cards — like Chase Sapphire Preferred and Citi Premier — allow you to earn travel points. Depending on the offer, you can typically earn thousands of bonus points upon account opening. If you like to travel, this might mean earning free nights or hotel credits, airfare, TSA precheck status, airport lounge access and more.
Credit card bonus offers might sound great at first, but they often come with strict requirements and fine print that can be hard to follow, but if you choose the best sign-up bonus for your situation, it may help you pay down debt.
The benefit of credit card bonus offers for new cardholders
Introductory rates, cash back programs and bonus points can be valuable opportunities for your finances. You likely aren’t going to get an incredibly low interest rate without taking advantage of a deal like a credit card promotional rate — especially if it’s a 0% intro APR (annual percentage yield) for the first year.
If you want to make a big purchase with your credit card — such as a TV, a vacation or even paying some bills — and don’t plan to pay it all off at once, a promo rate could help keep your interest charges to a minimum or even eliminate them.
And if you have an existing credit card balance with a high interest rate that you’re struggling to pay down, you can transfer the balance to a new card with a promotional rate. Just make sure the offer includes free balance transfers.
With a credit card bonus offer, you can map out exactly how long it’ll take to pay down that stubborn balance because there could be less interest inflating the final payoff amount. The key is to have a plan to ensure your balance is paid off before the promotional window closes.
Plus, credit card bonus offers, like points and cash rewards credit cards, can help you earn extra money on everyday purchases. Many cardholders use these membership rewards to pay for holiday gifts, vacations and other big-ticket items. You can also apply your cash back bonus as a credit to your account, which will help you cover part of the balance.
The downside of credit card sign-up bonuses
Simply put, the credit card offer gets you in the door. Credit card companies like American Express (Amex), Bank of America and Discover need new customers and use credit card bonus offers to attract them.
The credit card companies don’t make as much money in promotional rate periods, but they’re hoping you’ll use the card after the promo rate expires.
Credit card companies usually make up for what they lost after the special offer is over by jacking up your interest rates, introducing variable APRs and ending special bonuses like 5x points.
If you don’t pay off the entire credit card balance before the deal expires, the higher interest rate is applied to your remaining balance — and that’s how credit card companies can make a lot of money.
5 ways to maximize credit card bonus offers
Credit card bonus offers are a popular way for consumers to pay down their debt or collect cash back rewards through loyalty programs. No matter your goal, it’s important to keep several things in mind if you sign up for cash back credit cards, like Chase Ultimate Rewards, Capital One Venture or Chase Sapphire Reserve.
1. Don’t confuse waived interest for deferred interest
With deferred interest, if you don’t pay off your balance by the end of the promotional period, you’re stuck with all of the interest charges you would’ve owed. For example, if the promotional rate lasts six months and you don’t pay off the entire balance, you’re responsible for six months’ worth of interest.
With waived interest, if you don’t pay off your balance by the end of the promotional period, you’re only responsible for interest charges on the balance going forward.
One way to tell if your promotional rate is a deferred-interest agreement is if it’s framed as a conditional promise such as “You won’t pay any interest if it’s paid off in 12 months.”
2. Know the spending requirements
Many bonus offers require you to meet certain spending limits within a few months of account opening. For example, a credit card might offer you a $500 bonus if you spend $2000 on qualifying purchases in the first three months. If you don’t, you won’t receive the bonus.
Cash back reward credit cards have different reward rates for specific categories. Make sure you understand what constitutes an eligible purchase so you get the full benefit.
3. Avoid missed payments
It’s imperative that you don’t miss payments while taking advantage of a promo rate. If you’re more than 60 days delinquent on a payment, your special APR offer may be revoked. And if the new credit card has a high interest rate, it could increase your debt load.
4. Check for fees
Perks like 2x miles and cheap car rentals might sound nice, but fees can easily eat into your bonus offer.
Does a particular credit card charge card member fees? Check the fine print for
Foreign transaction fees
5. Check for interest rate hikes
Depending on the credit card bonus offer, you can usually expect to have double-digit interest rate increases after the promotional offer ends.
Using a promotional rate to save money or get out of debt can certainly backfire if you’re unable to pay off your balance during the promo period, so if you’re interested in harnessing the power of a promotional rate, look for a card that waives interest, offers free balance transfers and has a comfortable post-promotional rate.
When it comes to your money, you probably don’t want to leave anything to chance. So read the fine print to see what terms apply, especially when your credit score’s at stake.
Strategically boost your finances with credit card bonus offers
Credit card promotional rates can be an effective way to get out from under a high-interest balance. They’re also useful for people who want to earn bonus miles, cash back rewards and other useful perks.
But take advantage of these opportunities carefully. Credit card bonus offers come with potential drawbacks like interest increases, fees and spending requirements.
While credit card bonus offers are a popular way to pay down credit card debt, they aren’t the only tool in your arsenal. Tally† is a credit card payoff app that helps you use the debt avalanche method to pay down debt and combine your cards into a single monthly payment. Download the Tally app today.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.