Understanding Rewards Schemes & Programs

Demystifying rewards programs

Despite the popularity of rewards schemes and rewards programs most people are still unsure how exactly these programs work so we have done some research for you to demystify the process.

In short, a rewards credit card acts like a normal credit card first, meaning you can use it to pay your bills and purchase produce online, over the phone and in person. What differs is the rewards you are given each time you use your rewards credit card to make a purchase.

Some providers give you one reward point per dollar spent while others give you more. This means that not every dollar spent with your rewards credit card is equal in rewards worth to you. The aim of the game is to rack up a lot of rewards points, the more the merrier, so that we can use these points for free flights, products, holidays, etc.

The reality of rewards schemes looks different

As with any offer that sounds too good to be true there are always hidden traps for the consumer. Because we get these rewards thrown at us from all angles people believe them to be fabulous worth. While they can be for the right person, they are certainly not for most. Chances are that by using a rewards credit card you are actually losing money right now and I will tell you why in a moment.

Hidden rewards credit card traps:

• Very high interest rates on balances owed.
• Not profitable if you spend less than the $10,000 per year as the rewards earned will not even offset your card fee.
• Fluctuating rewards points depending on the whim of providers.
• Too much hype to suck consumers into the schemes.

The problem with these schemes is that unless you spend a lot of money during the year with your rewards credit card, your rewards will be worth little to you. Some rewards card providers require you to spend a considerable amount of money each year to be able to benefit from their offers.

The right rewards schemes card candidate:

Despite all the negatives there certainly are positive aspects of using rewards programs, given you are the right candidate to take advantage of them. If you:

• Pay off your credit card in full each month…
• Spend more than $12,000 per year on the card…
• Use your card to purchase everything and anything with it… which means you pay your bills, your groceries, your holidays, your subscriptions and everything else that requires a monetary transaction with this card, replacing all cheques, debit cards and often all cash – except in very small denominations.
• Are familiar with what you get in rewards…

… then you are the ideal rewards scheme credit card customer.

If on the other hand you have trouble managing your existing credit card then these schemes are simply not right for you because of the hidden traps mentioned earlier in this article.

Common rewards credit card providers in Australia

The following providers offer rewards schemes to their credit card customers in Australia. Please bear in mind that this list is not exhaustive as more offers are being thrown into the pit at any given time. The list should merely be a starting place for you to base your research on if you consider applying for a rewards credit card. We’ve already done the hard research for you:

1. American Express
2. Citibank
3. ANZ
4. St. George Bank
5. Woolworth’s Everyday Money
6. Bank West
7. Commonwealth Bank
8. Westpac Altitude
9. NAB
10. Virgin Velocity Rewards
11. and many more