Rewards Credit Cards Aren’t For Everyone

Who doesn’t like to be rewarded for their hard work? There isn’t anyone who doesn’t like to receive an award from time to time. It’s gratifying to receive a token of appreciation when you’ve worked so hard.

That’s the allure of rewards credit cards. They give you something back cash, a free flight, a television or in exchange for your charging purchases to their credit card. You know the good part about rewards credit cards. There’s a bit of a downside.

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Rewards credit cards have some of the highest interest rates of all the credit cards in the market. If you shop around for rewards credit cards, seldom will you find one that has an interest rate lower than 18% p.a. This makes carrying a balance on a rewards credit card very expensive.

When you have a balance on your credit card beyond the interest free period, you end up paying interest charges on the balance. The higher your balance and interest rate the higher your interest charges. It’s like paying extra for the items you purchased.

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Another costly aspect of rewards credit cards is the annual fee. They tout some of the highest annual fees of all credit cards. For example, the Qantas American Express Platinum Card has an annual fee of $395. This is a high cost to try to offset with rewards points. If you book a flight far enough in advance, you could use that same $395 to pay for the flight. You have to decide if it’s worth it.

Rewards credit cards have their good points and their bad points. There are many consumers who have spending habits that are conducive to using a rewards card effectively. Those people sign up for a rewards card, manage their purchases and payments, and receive their rewards. On the other hand, there are those who are better served by staying away from these expensive cards. Rewards credit cards don’t fit every situation, and if a rewards card isn’t for you, your reward is staying away from these cards.

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A Rewards Credit Card Is Not For You If:

• You carry a balance. We talked earlier about the high interest rate on rewards credit cards. If you’re not the type to pay your balance in full each month, a rewards credit card is not for you. Carrying a balance on a high interest rate credit card is expensive. There are far too many lower interest rate credit cards out there. Sign up for one of those and reward yourself with the interest you save by choosing a credit card with a low interest rate.
• You don’t use your credit card much. If you only charge a limited amount each month, having a rewards credit card is not, well, rewarding. You need to at least receive enough rewards each year to offset the annual fee. Otherwise, you’re wasting money. Consumers who don’t spend that much on their credit cards, would do better to choose a credit card with no annual fee. The money you save on the hefty fee is reward itself.
• You don’t use the rewards. People who never travel shouldn’t sign up for frequent flier rewards cards. Don’t sign up for a points rewards card if you don’t shop at any of the merchants. By far, a cash back credit card is the best option for those who aren’t interested in travel or merchandise rewards card. Even if the card just credits the amount of the reward to your account, it’s better than wasting precious rewards points that you’ll never use.
• -You can’t afford to pay your bill in full each month. If you can’t afford to pay your credit card bill, you shouldn’t have any credit card, much less a rewards credit card. As you already know, carrying a balance on your rewards card is expensive. Second, having a large credit card balance can damage your credit rating. Third, missing payments can forfeit your rewards, cause your interest rate to increase, and damage your credit rating. If you don’t have the money to pay for what you charge, don’t sign up for a rewards credit card.
• -You don’t have a good credit rating. Credit card companies typically expect rewards credit card applicants to have a higher credit rating. If your credit rating is damaged, it’s likely that you won’t get approved for a rewards credit card.

See the range of Reward Program cards available in Australia here. If you’ve decided that a reward’s card isn’t right for you, browse the low interest rate range instead.

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3. ANZ Rewards Visa – Earn Rewards Points With An ANZ Rewards Credit Card
4. Which Rewards Credit Cards Offer Me The Most Rewards For Spending?
5. Velocity Rewards: Credit Cards That Earn You Velocity Rewards Points
6. What Rewards Can I Earn With A Rewards Credit Card?
7. Diners Club International Velocity Rewards Points Credit Cards

Editor's Choice: Our Top Credit Cards

Credit Card	Card Details	Interest Rate (p.a.)	Cash Advance Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Interest free days (up to)
St George Vertigo	Editor's Choice: Low Interest Low 2.99% for 6 months (reverts to 11.99%) p.a. interest rate and balance transfer rate, from one of Australia's most respected banks.	2.99% for 6 months (reverts to 11.99%)	20.74%	2.99% for 6 months	$55	55
Coles Group Source MasterCard	The Coles Group Source MasterCard has no annual fee, a 0% p.a. balance transfer offer for 6 months, with a rewards program including savings on fuel and FlyBuys Points	19.74%	21.99%	0% for 6 months	$0	62
Bankwest Zero Platinum MasterCard	Editor's Choice: No Annual Fee Excellent introductory offer with a $0 annual fee for the life of the credit card and a 1.99% p.a. for 9 months on balance transfers	16.99%	16.99%	1.99% for 9 months	$0	55