Are rewards credit cards really worth it?

Avocado and feta, Sundays and sleep-ins, Australians and the beach – some things are made for each other. But when it comes to credit cards that have rewards, are they really a good match?

Rewards credit card can be a good way to turn your spending into ‘freebies’. From coffee machines to cash back to credit card Qantas points for the Qantas Frequent Flyer program, many credit cards will ‘reward’ you for spending.

But, are credit card rewards worth it when that ‘free’ toaster may end up costing you thousands?

How do rewards credit cards work?

Credit card rewards programs all work a bit differently but essentially you earn points or cash back when you spend on your credit card. You can then redeem these bonus points for travel, gift cards, cash back or merchandise (like the aforementioned toasters).

So, what’s the catch?

Those rewards card perks such as points and ‘complimentary insurances’ come at a cost. Rewards credit cards often charge a high annual fee that can cost up to $450 and high interest rates of up to 20.99% on purchases. Ouch.

Compare these costs to a low rate non-rewards credit card and the rewards may not be worth it – especially if:

• you don’t meet the eligible spend as a cardholder to earn enough points to redeem for anything worthwhile – basically you don’t spend enough.
• the points expire soon after you earn them
• you don’t pay your credit card balance in full within the interest free period
• it’s impossible to find a rewards seat on a flight to redeem your bonus Qantas points
• you don’t earn enough points to offset the high annual fee

The value of a rewards point.

In addition to higher annual fees and interest rates, often the points you earn aren’t worth much and you need to meet a minimum spend (which is often a lot) in order to earn enough points to redeem them for something.

Did you know for instance in Australia?

• To earn a $100 Myer gift voucher with a typical rewards credit card, you would need to spend roughly $25,000?
• To get a coffee machine worth $399 with a typical rewards credit card, you would need to spend roughly $110,000? That’s a very expensive latte.
• To receive two adult Hoyts cinema tickets with a typical rewards credit card, you would need to spend roughly $12,000? (Imagine how many choc tops you could buy with that).

Say no to 'new card, new me'

Rewards credit cards are cleverly designed to encourage consumers to spend in order to earn points. The eligibility criteria is basically ‘splash that cash!’ You shouldn’t have to increase your everyday purchases and spending to benefit from a rewards scheme; it should complement your existing lifestyle and financial situation.

So, before you get seduced by ‘free’ flights for international travel, upgrades in the airport lounge, vouchers and cashback, here are a few last things to consider.

Know how many points you will earn for every dollar spent

You’ll also ideally want to find out if there are any limitations or exclusions on what you can spend your moolah on to earn said points.

Stay on top of your credit card repayments as your points grow

Imagine your credit card is a watering can and your points are a rose bush – the more you use your credit card, the more your points will grow. But be sure to stay on top of your credit card balance and making repayments before the due date – consider this like pruning – that way, your rose bush (rewards points) will remain happy and healthy all year round.

Credit card perks comparison

The last thing you want to find out after spending all that time earning points on a platinum card is that you can’t use them in the way you would like. Afraid of flying? Frequent flyer points are probably not going to be high on the priority list. Choose the right credit card for you specifically. Different credit cards issuers offer different rewards. Shop around and make sure you go with the best credit card for points that are tailored to your interests and what your ideal eligible purchases would be.

To fee or not to fee, that is the question 

In short, before you open a credit card account, crunch the numbers to ensure you know the true value of your points and that you’re not getting stung by high card fees or exorbitant interest rates – because that ‘free’ trip to the movies could end up costing you a lot more than the price of a large popcorn.