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Credit Card Applications » News » Other » Hazards that come with points-based rewards programs

Hazards that come with points-based rewards programs

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Hazards that come with points-based rewards programs

There are plenty of hazards that come along with the points-based rewards programs, and at least 2/3rds of all credit card holders in Australia have these points-based rewards, and if they are not used wisely it can put the card holders into more debt. These programs typically include frequent flyer points, shopping vouchers, general rewards like appliances, instant or cash-back rewards, which will look like you are getting something out of nothing as the money would have been spent either way.

These rewards are of some value only for those who use their cards often, and not for someone who does not prefer using a credit card as a paying option.

A financial analyst at the research group Canstar Cannex, Mitchell Watson states that the rewards basically will entice a person to spend more using their cards, and discourage the use of their savings account. If the debt is not paid regularly, then one would end up in serious debt. Hence these card users must be really disciplined with their payments.

Rewards cards in general attract higher interest rates compared to the non-rewards cards and this is the key factor in sending card holders into a deeper debt cycle. There is an average of a 5% difference in the interest rates between reward cards and non-rewards cards. This is even without taking the higher annual fee into consideration. If the payments on the card are not made in full every month, then the interest rate levied on the card as well as the annual fee may easily outweigh the benefits or reward offers from the card.

Hence, Canstar Cannex has recommended that it is best to forget these rewards cards and choose a low-cost card instead. If one is intent on choosing a rewards card then it is best to see how much you are likely to use the card in a year and choose a rewards program based on a rough estimate of the card usage. This is a better way to get the best returns from the card. One will also have to choose the best reward offers and decide on that.

One must always ensure that the rewards program matches the spending pattern in some way. These rewards cards must reward you at the places that you shop most frequently. Over and above all of that one must pay all outstanding debts, states Mr. Watson.

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