When A Credit Card Rewards Scheme Might Not Suit You

There are almost fourteen and a half million credit cards in circulation in Australia

, many of which are affiliated to a credit card rewards scheme. Credit card rewards are one of the most popular types of card, offering consumers the chance to benefit from a wide range of lucrative rewards simply for using their card.

However, credit card rewards programs are not for everyone. If you fit into one of the following categories, you should think twice before applying for a rewards credit card.

You dont use your credit card often

Credit card rewards are awarded based on the amount of money spent on a credit card. Most cards typically award between one and two reward points for every dollar that you spend on the card.

However, most rewards credit cards also carry an annual fee of anywhere between $25 and $150, depending on the card.

For example, a $50 Myer gift card costs 8,400 reward points with Westpac Altitude Rewards. If your annual credit card fee is also $50, youd have to spend around $8,400 on your credit card annually to break even.

If you use your credit card rarely, you might therefore find that the credit card rewards that you accumulate arent significant enough for you to cover the cost of taking out a card. Your annual fee might cost more than your rewards. If you dont need the card, you may well be out of pocket.

You maintain a balance

Here is an example. If you spend $10,000 on your card you may earn 15,000 credit card rewards points. Using an average credit card rewards program, you would be able to exchange these rewards points for a $100-$150 gift card for a high street retailer such as Myer or David Jones.

Compare this to the interest you would pay on a balance of $10,000. At an interest rate of 15% you would pay in excess of $100 in interest to your card provider every month.

You can therefore clearly see that the benefit you are getting from your credit card rewards is easily outweighed by the interest you are paying to your bank. You would be much better off paying less interest with a low rate balance transfer credit card and forsaking the credit card rewards points.

You should only really consider a rewards credit card if you generally pay your balance in full every month.

You dont need the rewards

Whilst there is a wide choice of credit card rewards available, you may simply not need the rewards on offer. If you have no need for domestic flights, gift cards or electrical equipment, then it may be worth considering alternative types of credit card.

There would be no point paying an annual fee for a credit card if you arent going to get any benefit from the credit card rewards on offer.

by: rhys cooper

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