Reward Credit Cards

Whenever we spend we are doing so to gain some sort of reward – you pay your power bill and you’re rewarded with electricity, you buy your mum a present and you’re rewarded with a hug, you fuel up the car and you’re rewarded with reliable transport. However, when you spend on your credit card, many credit card providers like to reward you again with points, programs and merchandise, just for using their card.

With the rewards flooding in, it can become very tempting to just keep spending and keep earning credit card rewards points, without regard for your balance. This is dangerous because if you are spending to earn points but are unable to repay your balance before you are charged interest, you are diminishing the value of the rewards with the excessive interest charges of the card. Plus, when you are comparing balance transfer credit cards you need to firstly make sure not to spend (and earn rewards) on your card until the transferred balance is repaid, and secondly that you are not signing up for a new credit card which will encourage you to overspend and get back into debt in pursuit of rewards points.

Instead, make your comparisons of rewards credit cards wisely and match your spending habits and credit card needs to the card which will reward you for how you spend naturally – and responsibly – rather than hitting you with high fees for a rewards program you don’t use enough, and encouraging you to change your spending habits to fit the card.

Featured Reward Credit Card

Apply for Virgin Flyer Credit Card and get a low balance transfer interest rate, plus earn 1 Velocity Point per $1 spend up to $1,500 per month on every retail purchase anytime, anywhere. Also get 4 Free Flights per year, every year!

• $99 annual fee
• 20.99% p.a. on purchases
• 1.9% p.a. for 12 months on balance transfers
• Cash Advance Rate of 20.99% p.a.
• 44 days interest free

Read the Virgin Flyer Credit Card terms and conditions.

Top 5 Rewards Credit Cards

	Interest Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Cash Advance Rate (p.a.)
Virgin Flyer Credit Card	20.99%	1.9% for 12 months	$99	20.99%
American Express Platinum Edge Credit Card	0% for 6 months (reverts to 20.74% )		$149
Westpac Earth Classic	19.99%	0.99% for 6 months	$75	21.49%
ANZ Frequent Flyer	19.74%		$95	20.99%
ANZ Frequent Flyer Platinum American Express/Visa	19.74%		$295	20.99%
American Express Qantas Discovery Card	20.74%		$0	20.74%
ANZ Rewards Credit Card	19.74%		$89	20.99%
Citibank BP Credit Card	20.89%	0% for 6 months	$89	21.39%

Rewards Credit Cards if You Spend $12,000 Per Year

If you’re spending around $1,000 each month on your credit card then you’re probably not using it for your every day spending, purchases and bills. If you just use your credit card at times when money is a little tight, in emergencies or for shopping online then you have a very low yearly credit card spend and this limits the rewards credit cards which will be worthwhile for you to use.

You will need to look for rewards credit cards with a low or $0 annual fee and no fees for transactions when you make BPAY payments for example. Before choosing a rewards credit card, make sure you compare the cards which are best for a low annual spend, and can still reward you.

Rewards Credit Cards if You Spend $24,000 Per Year

Once you get up to spending around $2,000 per month you are an average rewards program user as a $24,000 annual spend is the minimum required to benefit from credit cards linked to the Frequent Flyer rewards program. Once you’re looking at these types of rewards credit cards you can also start to benefit from additional features such as travel insurance and purchase protection.

To qualify for a rewards credit card on which you will be spending around $24,000 per year, you will need to be earning around $45,000 per year. With more benefits to choose from you can make your comparisons based on your rewards preferences and extra credit card privileges.

Rewards Credit Cards if You Spend $60,000 Per Year

If you spend $5,000 per month on your credit card then you are using it for everything – all of your bills, all of your purchases and you are leaving your wages in a high interest savings account or offsetting your mortgage, taking advantage of the long interest free periods offered with these types of rewards cards. When you are able to offset the higher annual fees of these rewards cards with a $60,000 annual spend you can reap over $500 worth of rewards in a year. You’ll also have access to travel insurance, personal concierge service around the clock, purchase security and other premium benefits specific to each provider.

You will need to be earning around $70,000 per year to qualify for this type of rewards card, but if you are able to repay your credit card balance in full each month, then your wages are already at the right level. With more features and benefits open to high use rewards credit cards, take time to compare the cards based on the features you want and need, not the ones which are new to Australia or the only ones in the world.

What can you redeem your points for?

This is an important point to take into consideration because there is no point comparing and choosing a rewards credit card which earns points towards reward you don’t want or need. while some rewards credit cards will give you a choice about which program you want to earn points towards, others will have set programs. However, some rewards credit cards will allow you to link to rewards programs you are already a member of such as FlyBuys or Frequent Flyer.

Rewards credit cards allow you to redeem points for:

• Cash back onto your account. You can choose a rewards credit card which transfers the points you earn into cash credits to your account. When you earn enough points you can redeem them for a credit to your account which repays your balance, any fees which have been applied and the more you spend, the more your card pays itself off. Other cash back rewards programs will give you a percentage of your spend back as a credit to your account instead of building a points balance. This percentage could be anywhere from 1% to 5% cash back.
• Flights and travel rewards. This is the rewards program which is probably the most easily recognisable and will be suited to you if you do a lot of flying and travelling, as points can also often be redeemed for accommodation as well as the travel portion of your trip. Other travel rewards include priority check in, admission to luxury airport lounges around the world, as well as flights with partnered airlines so you can use your points for domestic or international travel.
• Merchandise and gift vouchers. With merchandise rewards you may be rewarded when you spend at certain retailers with an on the spot discount for using your card. Alternatively you can shop the credit card rewards store and choose an item which you can ‘buy’ if you have the right amount of points on your account. These can be kitchenware items, clothing or gift vouchers and most programs have thousands of items to choose from.
• Donations. Credit cards which make donations to charity can work in a similar way to cash back rewards programs where a percentage of your total spend can be redeemed for a donation to the credit card provider’s affiliated charity. This means that you can’t usually choose the charity you donate to, but you can be sure it is a worthy cause all the same.

How do you maximise the points earning capacity of your rewards credit card?

You don’t usually have to do anything too tricky to earn rewards points on your card – simply use it as often as you can afford to, whenever you spend in person or online. However, to maximise the points you earn on your card to make your spending truly rewarding you will need to understand how each card works.

For example, some rewards credit cards will allow you to earn more points per dollar spent if you shop at partnered retail stores, and even if you buy certain products. You may also be able to qualify for introductory bonus points offers where your points balance is credited with a bulk injection of points after you make a purchase for the first time.

Also make sure you know whether your rewards points are capped, either at a certain amount, or at a certain amount you can earn from one outlet or retailer. You also want to choose as rewards card where points don’t expire so you can keep earning points to qualify you for a reward you really want, without being pressured into spending by a deadline.

Common Pitfalls of Rewards Credit Cards

It is best that we learn from our mistakes but it’s even better if we can learn from someone else’s mistakes, so here are some common ways you can mistakenly use your rewards credit card, so don’t fall into the traps other have:

• Don’t spend just to earn points. If you’re spending on your credit card with the sole purpose of accumulating a large points balance then chances are you will be spending more than you can afford to repay. As soon as your purchases start attracting interest charges your credit card is costing you even more and the true value of your rewards go down.
• Make sure you’re spending enough. While the idea of being rewarded for your credit card spending sounds great, if you just don’t use your card enough in a year to earn enough points to redeem then you are going to be paying higher annual fees and charges without any benefit. Unless you are spending at least $1,000 per month on your credit card you will be better rewarded with a low fee, low rate credit card.
• Don’t make cash advances. You should avoid cash advances on all credit cards and especially rewards credit cards because the additional interest eats into your rewards and you don’t earn rewards points for the cash you ‘spend’ when you withdraw from your account. This is because cash advances do not qualify for interest free days and start attracting interest charges right away. Plus, credit card providers allocate your repayments based on the adverse order of payments where your oldest purchases and your lowest interest rate purchases will be repaid first.

What are rewards points really worth?

Rewards credit card providers are always very quick to tell you that you will earn 1 point for every $1 spent for example, but this rarely means that you can redeem that point for the same value. While you may spend $100 and earn 100 points, when it comes time to redeem those points you will be getting something which is worth much less than $100.

This is where you need to find out what a credit card rewards program is really worth, by calculating what your spending is worth once translated into rewards points. You can do this by looking at the rewards redemption brochures or websites of the credit cards you are comparing to see how far your points would stretch.

For example, a rewards credit card which will redeem 5,620 rewards points for a set of 4 glass tumblers which are worth $39.95 has rewards points which are worth $0.007 just one seventh of a cent and if you are earning 1 point for every $1 spent you would have to spend over $5,000 to be rewarded with a $39.95 glassware set, which can be rewarding if you were doing the spending anyway, but proves that spending just for rewards points is not worthwhile.

You will also need to be aware of rewards credit cards which don’t have a set points-to-dollar value. For example, a $20 gift voucher may cost you 3,400 rewards points which equates to your points being worth $0.005 each. However, the same rewards program may let you redeem 5,000 points for a $100 mobile phone recharge and in this instance your points are worth $0.02 each. Or if you redeem 8,000 points with that same provider you can get four adult movie passes but this means your points were worth just $0.0085 each.

What features do you need in a rewards credit card?

Now that you have realised that credit card rewards programs should be an aside to your daily credit card spending rather than the motivator, you need to look at the other features of rewards credit cards, and which will help you maximise your rewards points without getting into insurmountable debt.

Features to look for in a rewards credit card include:

• Interest free days. A long interest free period will allow you to make purchases and collect points without being charged interest. This raises the value of the points you are collecting because they are not costing you in interest charges. It also makes sense to use the bank’s money while yours is earning or saving you interest in another account. Just make sure you stick to your monthly spending budget and can repay your balance in full before the end of each interest free period because interest free only applies if your balance is repaid to zero.
• Interest rates. If you are unable to repay all of your balance within an interest free period, make sure you’re not going to be hit with high interest charges because it is possible to find a rewards credit card which doesn’t have an interest rate in the 20s.
• Annual fees. Just because your average spend on your credit card means your rewards would outweigh any fees charged on a more inclusive rewards card, doesn’t mean you need to ignore a comparison of these fees. Firstly, because the fees come out of your account and must be repaid as part of your balance, and secondly because spending to earn rewards which offset your card fees is just as fruitless as solely spending to earn rewards points for vouchers or merchandise.

How to use a rewards credit card

While you shouldn’t be spending on your card with the sole purpose of earning rewards points, there is little point in having a rewards credit card if it’s not going to reward you – you could more easily choose a low rate, low fee card and not have to think about a points balance. However, if you are someone who regularly spends on your credit card and wants to be rewarded, then follow these steps to use your rewards credit card successfully and responsibly:

1. Get into the habit of using your card for everything. If you have previously only used your credit card for emergencies and online purchases, you will need to get into the habit of using your card more often so your purchases are more rewarding. The first thing you will need to do is let go of the perception that credit cards are bad and evil, because if used wisely they don’t have to be. Now you can start using your card to pay for all of your everyday purchases such as groceries and fuel, because you would probably use your debit card to pay for these anyway. When it comes time to pay bills use your credit card again, making sure there is no surcharge for paying your bills with credit.
2. Don’t spend your cash too. When you are using your credit card for all of your purchases throughout the month, it is easy to be tempted by the full savings balance in your transaction account. However, you need to keep in mind that that balance will be going to pay off your credit card spending at the end of the interest free period.
3. Keep an eye on interest free days. Some credit cards offer up to 55 interest free days so you have more than a month to leave your wages in a high interest savings account, or offsetting the interest on your mortgage. However, don’t forget when the interest free deadline is each month and make sure you transfer enough money to cover your credit card spending several days before the end of the interest free period to make sure your card is repaid on time, in full.
4. Earn bonus points. When choosing your rewards credit card, make sure you look for one which is partnered with the businesses or retailers you already regularly use. This will give you more opportunity to easily earn bonus points through partnered promotions, simply by spending and shopping regularly. Also make sure you remain aware of any new promotions by checking your statements or the provider’s website where these will be advertised.
5. Redeem your points. It can make sense to save up your points for a big reward and there is nothing wrong with this plan if your points aren’t capped and don’t expire. However, just as you can lose interest and motivation when saving for a long term goal, so too can you be tempted to overspend to get your points balance to go that last little distance for the reward you have been waiting for so long. Therefore, regularly check your points balance and the rewards which it can equate to because you may see smaller items along the way which you want and can use and you are being regularly rewarded for your spending.
6. Know the conditions of the card. While you can quite easily compare the features and benefits of a rewards credit card, make sure you take the time to read the terms and conditions of the card too. This will ensure you are familiar with any restrictions on your points and on your rewards, as well as any fees or conditions which are associated with redemption.

How to use a rewards credit card for a balance transfer

If you are in need of a balance transfer to help you get control of your credit card debt, being rewarded by your credit card can be a welcome relief to the feelings of entrapment you have been used to. At the same time, you need to make sure you know how to use a rewards credit card if you are making a balance transfer to make sure you are able to maximise your points, and ensure that you avoid the situation of needing another balance transfer in the future:

1. Compare balance transfer offers. When you have a credit card balance you want to clear your main priority so you should look for the lowest balance transfer interest rate you can find, with the longest balance transfer period in which to repay your transferred balance.
2. Check for a transfer fee. Sometimes the more feature packed the card, the more fees there are attached so if you are considering transferring to a rewards credit card, check for a transfer fee which could be a flat fee, or may be a percentage of your balance.
3. Compare rewards credit cards. Now it is time to compare the features and benefits of the card you will be able to enjoy after you have repaid your transferred balance. Look for features which will help you manage your account and stay out of debt such as a low interest rate, a long interest free period and low transaction fees so you can easily make payments to your card.
4. Don’t spend on the card until your transferred balance is repaid. This may mean avoiding rewards credit cards which offer bonus points for new users on their first spend as these offers usually have to be used within the first six months of opening the account and you may not have cleared your balance yet. Making new purchases on your balance transfer rewards credit card means that they will attract interest immediately, and continue to do so until your transferred balance is repaid because your repayments will go towards your oldest and lowest interest rate balance first.

Start a rewards credit card comparison now.

Posted on Wednesday, December 22nd, 2010 at 9:46 am