Credit Card Rewards: Are they worth it?
Reward credit cards are essentially well-enhanced loyalty programs. The best rewards are earned by the card holders who make their reward credit cards their default option when paying for purchases and other expenditures.
Reward credit cards are packaged in several types, each one offering rewards programs calibrated to suit particular spending patterns. But they all have the same basic premise: the more purchases you charge to the reward credit cards the greater the rewards.
Types of reward credit cards
Frequent flyer credit cards. Points earned from a frequent flyer credit card normally go to the frequent flyer program of the airline you prefer. The number of points earned depends on how much spending is charged to the card. Aside from free flights, the frequent flyer credit card rewards may include free hotel stays, travel insurance, etc.
Credit Cards with General / Catalogue Rewards. The credit card usually has partners in the program who provide the products offered for redemption under the rewards program. The items on offer could be anything although may include small applicances luggae, movie tickets, gift vouchers and more.
Credit cards with Cash-back. These cards offer a very simple program: your account is credited for a certain percentage of the amount spent on particular items. For example, you may get a 5 per cent rebate for fuel purchases.
Credit Cards with Instant Rewards. These cards offer even simpler programs. You don’t need to way to clock up points, you simply get access to special rates or discounts from partner retailers and merchants. This could take the form of an immediate discount, a buy-1-take-1 offer, or buy X items and get the Next free, etc.
Getting value from reward credit cards
Your credit card should fit your spending behaviour. If you use charge often and prefer not to carry any balances, reward credit cards that allow you to accumulate points should work best for you.
If you don’t pay your cad bills in full each month then it’s more than likely you won’t be suited to a points based rewards credit card. Rewards programs are partly funded through higher interest rates on purchases; if you pay your bills in full by the due date then you may avoid all interest charges, otherwise it could be very costly. Unpaid balances carried into the next payment period will attract the high interest rate. The ensuing interest expense would simply outweigh any benefits you expect from the rewards program.
Often rewards cards have an annual fee. Their value to you therefore depends on whether the worth of benefits you receive exceeds the cost of being in the rewards program.
The simplest way to measure this is to work out how much you would have to spend per $1 of rewards. Not all cards award equally, some might earn you one point per dollar spent while another could offer 1.5 points per $1. To get a reward item worth 6,000 points you thus need to spend $6,000 on the first card and only $4,000 on the other.
Another method is the point currency concept developed by Cannex. Point currency gives you the spending value of your rewards points. All you need to do is divide the number of points for the reward item of your choice by the recommended retail price. The lower the number of points required the higher the points value are as you need less points for the same reward.
For example, one program may require 10,000 points to win an item worth $75 in retail, but another program may need 12,000 points. The point currency in the first program is 10,000 divided by $75 or 133.3 points per $1 for the first, and then 12,000 points divided by $75 or 160 points per $1 for the other.
As far as the rewards item is concerned, the first program gives you better point currency. Note though that if you incorporate the first method and the example described above, you may need to spend $10,000 to accumulate the required points in one program (at 1 point earned per $1 spent) but only $8,000 in the other (at 1.5 points earned per $1 spent).
The point should be clear: you need to regularly evaluate your reward credit cards for the worth of their benefits to you.
This article written by R.Greenwood from credit card comparison website click4credit.com.au.
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