A couple of big brand stores offer credit cards which will reward you for using them.…  They say something along the lines of, "This is a great opportunity.…  This card entitles you to rockstar treatment.…  You can use this at all of your favorite shops and in return for shopping at places where you like you get free stuff!"…  That proposal is very persuasive; you sign up for this card, shop where you like, and get free stuff.…  Where is the downside to that?

Well, if you are on a budget, for starters, credit cards are not the way to go. Studies have shown that using credit cards instead of cash when purchasing goods, actually leads to spending more.…  (Out of sight, out of mind...)…  Cash is tangible, whereas a card with a swipe and a flash of a long string of digits for a second isn't much of a burden on the mind.…  Carrying around cash, you can feel the lightness to your wallet as you spend it, but carrying around a credit card, after you spend, you don't have the physical reminder present to say that you've reached your reasonable spending limit.

This isn't entirely your fault.…  Many people overspend when they just use credit cards.…  And credit card marketers cash in the big bucks by taking advantage of that known but subtle fact.…  Credit card marketers also found out that if you have a credit card with an affiliation to a place that you love to shop in, you end up spending more at that place with that affiliated credit card than without.…  (The bottom line is that you go broke faster while they get richer).

Let's check out the evolution of spending in three hypothetical scenarios.…  The first one takes place without possession of a credit card and only with cash.…  Say that you love to shop at XYZ store.…  Paying in cash is the easiest way to see the limit of your spending. For example, you would hesitate to compare the value of buying one of the latest, trendy items…  versus buying…  one or more items in the clearance section, usually last season's. With a finite amount of dollars in your pocket, the option to buy one or more items in the clearance section would probably win your favor because you would break even or still have change back from those purchases, whereas you could not leave the XYZ store with a pricey, trendy item because you would not have enough bills to pay for it and you don't want to be convicted for shoplifting.

The second scenario introduces credit card spending.…  You think to yourself that it's easy to keep within budget and track your spending online.…  You'll balance the amounts later and keep the receipts nice and tidy.…  You get to shops and have your pick of the litter.… …  You can mix and match and shop at all of their clearance sections.…  You reason that you've got cash in the bank or cash is coming on the way. Most of the time, this is true. Spending invisible cash is fun. Before you know it, you have a severe back pain and perhaps a slight strain in both of your wrists and arms that you won't notice until the following day because you're temporarily occupied by the euphoria of the vast quantity of purchases you've made--- and you have a huge credit card bill. However you rationalize, next time around, you'll be smarter, so you sign up for one of those fancy credit cards that give you rewards for shopping, yes!

The third scenario involves shopping with a credit card that offers rewards. Next time does come around and it goes something like this. You have fancy XYZ credit card.…  You picked this credit card because for all the shopping that you do, you want to be rewarded for all that hard work.…  There are a litter of shops that you would have shopped around at with loads of clearance sections, but only certain stores and certain items in affiliation with XYZ credit card will give you the "opportunity" to get free stuff.…  What happens next?…  You make a point to shop at XYZ stores and go out of your way to buy XYZ items even if you don't really need them.…  The reasoning is, "Hey, I'll get free stuff, that'll balance the amount I spend on all of this stuff, and in the end I"ll get more stuff for less!" This is a common scenario, and what occurs is you end up with a lot of stuff you don't completely use and either free stuff that would've been cheaper to buy outright, free stuff you wouldn't dream of using until it was brought to your attention or placed in your lap, or a big credit card bill that needs to be paid off and no free stuff yet because you don't have enough points (aka you haven't spend enough money -on XYZ- creditors want you to spend more) or a mixture of the above list.

Credit cards with rewards always have a catch; this collection is euphemistically referred to as "hidden perks." These hidden perks include higher annual fees and higher interest rates.…  Secondarily, these hidden perks have restrictions which include limited shopping choices and a creeping, progressive loyalty towards items and stores that have the same brand as the cards.…  All of these can help make living more expensive.

Tips: Check out the fine print and take note of the date of credit card statements.…  To get some rewards, for some cards, you need to spend thousands or tens of thousands of dollars to get something "free." You might have been able to purchase this "free reward" for a cheaper amount or price if you bought it outright.…  It also might have been more convenient to buy the "reward" when you decided it was more convenient as many "rewards" can come with an expiration date which if you missed, you'd have lost the reward.

If you choose to sign p for these credit cards with rewards and hidden perks because you have a loyalty to its affiliations already and you spend X amount on the affiliated products already, then don't forget to keep an eye on that budget that you had before you signed up for that card. Remind yourself of your set limit.…  Have a good look at how to get those rewards and if it is worth it.…  Don't be afraid to ask.

Definitely mark off on your calendar when your credit statements for each of your credit cards are, particularly the cards with higher interest rates.…  Have a reminder system, a sort of life game plan for your spending instead of throwing your hard earned money away to people who sit pretty off of other people's late payment fees.…  Keep in mind that compound interest or just making the minimum payment on credit cards (especially with high interest) would make a reasonable morning take away coffee of $2 or $3 three or four times or more that amount.…  Imagine paying $12 for a takeaway coffee! Now imagine the effect of that takeway coffee price and those effects on the purchases that you make on a credit card. That's outrageous, but essentially that's the risk that you take with credit cards. There's the hidden perk!

For more tips or a way to get out of a debt mess contact Debt Fix on 1300 332 834

Pamela Caronongan is a guest writer. She has a MSA degree with a specialization in finance from Northeastern Illinois University and a BA degree in English Literature from the University of Illinois Champaign-Urbana. Her background includes promotional marketing and creating instructional material for businesses. Her interests are in financial analysis, auditing, and writing.