Sunday, February 24, 2013

Ditch Your Rewards Credit Cards and Save Money

Choosing a rewards credit card can seem like a great idea when you sign up. After all, who doesn't want free stuff?

The problem is, a lot of the time it’s not free – and unless you are a BIG spender, or you are super-smart about using your credit card, you could be spending more on your credit card than you are getting back in rewards.

So, how do you know when you should keep your rewards card and when you should ditch it for something smarter?

Annual Fees
The first thing to look at on your credit card is the amount you are paying in annual fees. As friendly as credit card providers may appear, they are not here to be your friend, they are here to make money. This means they generally won’t give away free stuff.

Look at how much you are paying in annual fees and compare it to how much you are getting back in rewards. In order to make their money back on the rewards they give out, many card companies charge more in annual fees.

You have to make sure you get your money’s worth. This can sometimes be achieved by using your card for all your purchases – more spending means more rewards. Just be sure to pay off the balance in full each month, or you will lose out in interest payments.

Or, choose a rewards credit card that charges no annual fee. Not always easy to find, but they are there.

Similarly, card providers can charge more in interest on rewards cards than regular credit cards. If you carry a balance on your card each month, then you are probably paying out more in interest than you are getting back in rewards.

To avoid this, either pay your bill in full each month, or choose a rewards card with low-low-interest.

As odd as it sounds, some people choose rewards credit cards and don’t know much about the rewards program. They like the idea of having a rewards card, but don’t actually need any of the rewards. If you are set on having a rewards card, make sure it offers rewards you will use. Or, if you don’t need rewards at all, choose a cheaper standard credit card and save yourself some money.

Expired Points
Some card providers have expiry dates on their rewards points. This would mean your reward points get deleted if you don’t redeem them within a certain time period. If you spend small on your credit card, then it probably means you earn points slowly. However, this may mean your points will expire before you ever get a chance to use them.

Ditch or Keep?
  • If you are getting more back than you are paying on annual fees and interest: Keep.
  • If you are paying out more than you get back: Ditch.
  • If you are not getting the rewards you want: Ditch (or Switch to another card with a better rewards program).
  • If you are losing your points before you can use them: Ditch.

1 comment:

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