Good and not so good ways to use your credit card rewards

Credit card rewards have long been one of the selection criterions for choosing which credit card to opt for. These reward programs are however moving away from being the easy money they used to be with more and more issuers either changing their existing reward programs or introducing new ones that more often than not have terms and conditions that make them fairly complicated to cash in on.

Reward cards are typically cards that offer you the ability to earn ‘points’ based on the amount of money spent using the card. Depending upon the individual card, you can then use these points to earn some cash back, purchase travel miles, gift vouchers or buy products from a reward catalogue etc.

What to keep in mind when choosing between reward cards?

  •  Needless to say, reward cards make most sense if they come with no joining or annual fees. In cases where they do, it would be useful to compare such fees against the rewards on offer. Different issuers not only have varying methodologies for rewarding points but also different rupee values associated with each point. You need to keep in mind not only the number of points being accumulated for a given amount of spend but also the value associated with these points.
  • The best reward cards are perhaps the ones that offer redemption of points in ways other than just purchasing products from a catalogue – most of these products are usually overpriced. Rewards that offer cash back options will most likely be the best followed by ability to redeem points for purchasing directly from providers such as air miles or products / vouchers from a shopping store.
  • If you usually carry outstanding balances on your credit cards, then you should simply go for the lowest interest rate cards rather than trying to go for a higher interest rate reward card. No amount of rewards or cash back will ever be able to compensate for the interest rates you pay on your outstanding balances.

Good ways to use your credit card points

  • If there is a conversion to products or services available for redemption of your points, then it is best to exercise that option frequently after the minimum threshold for such an option is reached. Do note that the rules around the value of points and the associated terms for redemption keep changing from time to time and it is usually better to keep cashing in frequently rather than waiting for fairly long durations to accumulate a larger pool of reward points.
  • If there are stores or brands that you prefer and frequently use for your purchases, then it would be worth your while to explore co-branded cards that offer rewards on such stores or brands.

Not so good ways to use your credit card points

  • Usage or a card with a hefty annual fees and then using the reward points to pay for the annual fees does not really make sense unless the reward program actually helps you to accumulate points at a faster rate and with a high value association with these points. You want a reward card for the additional rewards you can accumulate and redeem for something of value; if all you are using your reward points for is to pay for the card itself, you might as well go for a no cost – no reward card.
  • Purchases from reward catalogues using your reward points may not always be a good deal. Yes, in a way it’s coming free of cost but if the products are overpriced and the points can be utilised for the same value elsewhere, then elsewhere is where you should look whether it’s free fuel, air miles, gift vouchers etc.

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