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Beware: Credit card rewards can come at a high cost

You shouldn’t let the tax tail wag the investment dog. The same line of thinking also applies to credit card rewards. Making purchases solely to rack up points is a bad idea because you may not be earning the grand prize you think you're getting.

Still, some people can’t resist the thrill of the chase. According to a new survey from Bankrate.com, 68 percent of those polled said they are trying to maximize credit card rewards. Millennials in particular are vulnerable: 78 percent of them surveyed are desperately seeking points.

What is it about points that makes people feel like they got them for free? In fact, they can be downright expensive.

Consider interest you’ll pay

“The national average credit card interest rate is around 19 percent. Say you buy something for $1,000 and don’t pay it off immediately. You’ll get $10, $15 worth of points, yet owe $190 in interest,” says Jeff Galak, associate professor of marketing at Carnegie Mellon University's Tepper School of Business in Pittsburgh. “It's a losing proposition.”

Be mindful of fees

If your card has an annual fee of $100, in most cases, you must earn at least 10,000 points to cover that fee. “If you don't spend enough to cover the annual fee on a card, don't get that card,” says Galak.

Take a reality check

Sara Rathner, a credit card expert with NerdWallet.com, says, “If you don’t take at least one big trip per year, preferably an international one, you simply won’t have the chance to take full advantage of every perk that travel rewards cards offer, which helps offset their higher annual fees.”

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