The reward trap: How credit cards make you pay for your own perks – Money Insights News

Credit card “rewards” are never free. The cashback, miles, and vouchers are bait to make you spend more and carry balances that rack up 30 to 40% interest. Annual fees, forex markups, and late charges quietly wipe out whatever you think you gained. The game is simple: they hand you points, and they take your money.

Last week, my brother, who is new to this whole credit card thing, was approached by his current account bank partner. They offered him a fancy card with airport lounge access, hotel vouchers, milestone bonuses – the works. 

For a moment, he was intrigued.

But then the businessman in him kicked in. Yaar, itna free kaise? What is the catch? He asked me straight: kya chal raha hai?

I told him what I had learned the hard way. 

Nothing in these offers is truly free. Banks are not in the business of gifting holidays or cashback. They are in the business of getting you to spend more than you otherwise would, and then collecting interest when you cannot clear the bill in full. That is how they make money, and that is how so many people fall into the trap.

The data tells the same story. 

Credit card dues in India have crossed ₹2.5 lakh crore this year. Surveys show that more than half of reward card users admit they spend extra just to unlock a milestone bonus. Banks know this behaviour well – the free voucher or reward is bait. The real earnings come from interest at 30 to 40% a year once people slip into rolling credit.

So when my brother asked yeh kya chal raha hai, I could only say one thing: this is not a gift, it is a well-designed system to make you spend, and once you are hooked, it becomes very hard to step away.

The Psychology Behind the Trap

What makes these reward cards so effective is not just the perks, but how they play with the mind. 

When you swipe a card, you do not feel the same sting as when you hand over cash. Behavioural economists have shown that paying with plastic dulls the discomfort of parting with money. You get the instant high of buying something, but the bill arrives weeks later.

That delay tricks the brain into thinking the spending is smaller than it really is.

Then comes the game of milestones. 

Spend ₹2 lakh and unlock a holiday. Swipe ₹50,000 this month and get 10,000 bonus points. Suddenly, you are no longer buying what you truly need, you are buying to hit a target. I have seen people add extra items to their carts or bring forward expenses only because a reward offer was about to expire. 

The milestone feels like an opportunity, but it is really just a clever nudge to make you spend more. 

Credit card rewards work by blurring the line between what you want and what you actually need. They make debt look aspirational, even harmless, until the monthly bill lands in your inbox and the reality sets in. 

When Rewards Turn Into Real-Life Losses

The numbers on a credit card bill do not stay confined to a statement. They spill into daily life. 

I have seen cardholders delay important purchases, cancel family trips, and even postpone medical treatments because their card dues had grown larger than they expected. 

The stress actually becomes emotional. Money that was supposed to create comfort ends up creating tension at home.

This is what makes reward cards so dangerous. 

The perks feel attractive but behind them, balances grow, and interest snowballs. Once the debt crosses a certain point, people start borrowing more just to stay afloat. 

It is the same cycle I warned about earlier when discussing how EMIs can eat into household savings. In both cases, the design is the same: make the immediate cost feel small, so the long-term burden becomes invisible until it is too late.

I know people who began with just one premium card “for the rewards” and now juggle three or four, each with annual fees and dues. The short-term thrill of free perks turned into years of rolling balances. Some managed to climb out, slowly and painfully. Others are still trapped, paying interest month after month for benefits they barely remember.

In the end, these are not stories about numbers. They are stories about families under stress, small businesses stretched thin, and individuals who once believed they had found a smart financial hack, only to realize they had been caught in a system built to extract more than it ever gives back.

A Simple Rule to Protect Yourself

Credit card rewards are marketed as a smart way to spend, but in reality they are a system tilted in favour of the banks. Basically, the house always wins.

The points and vouchers are small tokens to keep you hooked, while the real earnings come from the interest and fees that so many cardholders quietly pay. If you are not disciplined enough to clear your bill in full every single month, these rewards are not just useless, they are harmful.

Here is what I urge you to do:

• Do the math honestly. Check how much you have paid in annual fees, interest, and late charges in the past year. Compare that to the value of your rewards. For most people, the costs far exceed the benefits.
• Stop spending for milestones. If you find yourself buying things only to unlock a voucher or bonus points, step back. That is not saving, it is overspending dressed up as a deal.
• Use only what you can clear. Treat your card like a debit card. If you cannot pay the full bill at the end of the cycle, do not swipe. Revolving balances at 30–40% interest destroy wealth faster than any perk can build it.
• Simplify. One no-fee card for emergencies is enough. Cancel the rest, especially the premium ones that demand high annual fees and tempt you with milestone traps.

I told my brother the same thing when he asked me about his “fancy” new card offer: the best reward is not points or upgrades. The best reward is peace of mind. And you only get that by staying free of debt.

So the next time a bank pitches you an aspirational “metal” card with promises of free perks, pause and ask yourself: what is the real cost? If the answer is anything beyond zero, walk away. Your money and your future are worth more than any lounge visit or cashback offer.

Author Note

Note: This article relies on data from fund reports, index history, and public disclosures. We have used our own assumptions for analysis and illustrations.

The purpose of this article is to share insights, data points, and thought-provoking perspectives on investing. It is not investment advice. If you wish to act on any investment idea, you are strongly advised to consult a qualified advisor. This article is strictly for educational purposes. The views expressed are personal and do not reflect those of my current or past employers.

Parth Parikh has over a decade of experience in finance and research. He currently heads growth and content strategy at Finsire, where he works on investor education initiatives and products like Loan Against Mutual Funds (LAMF) and financial data solutions for banks and fintechs.

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