Are you good at asking yourself tough questions? Try this one: are you prepared to pay your credit card bill in full and on time every single month?

If you can’t (or won’t) do that, then a rewards card really isn’t worth it.

And you know what? Most people don’t keep to the straight and narrow. What proportion of people don’t pay their card in full each month, would you say? Care to take a guess? How about 30%? Or maybe 60%? Keep going, it’s even more than that.

Okay, with the stern parental warning taken care of, let’s take a look at credit card reward schemes.

If you really know how to work the points system, credit card rewards can put you on a plane to Tahiti, to Los Angeles, to Berlin, to Barcelona, for trip after glorious free trip. Do a lot of big purchasing for your business on your credit card, for example, and you’ll just see those numbers climbing. You can turn that into some serious reward action.

Sounds good, doesn’t it? But there’s a bottom line here. This is business, and in business you’re very lucky to ever get anything for nothing.

The concept behind a credit card rewards scheme is simple enough: for each dollar you spend on your credit card, you earn points and one day you cash them in for rewards – maybe travel, maybe accommodation, maybe an iPhone, or pages of exotic treats in the rewards catalogues.

But a loyalty scheme is there to encourage you to spend, so unless you spend heaps on your card, you won’t be seeing any great mountain of points. And unless you pay it off in full each month, it’s probably not going to be worth your while, not once you allow for the annual fee (large) and also the fee for being a part of the rewards scheme (also large).

What that means is you need to be spending more than $12,000 a year just to cover your fees. If you’re not that kind of spender, it’s really not worth a look.

The other thing to know about rewards schemes, and if you’ve looked at it for even three minutes you’ll already know now this, is: it’s a colossal mission to compare all the schemes and work out which is the best deal for you.

Fortunately, there are people who are prepared to do this work diligently, painstakingly and routinely. We have a sneaking suspicion they might be the sort of people who pay their card in full each month. Anyway, if you want to get a serious league table there are three equally seriously helpful places you could look at: Canstar, Consumer magazine online, and Interest.co.nz. 

Consumer magazine created a useful test in their most recent report on credit card rewards – well worth using for your own comparisons, especially if what you’re really after is a flight to somewhere nice.

They asked, if you spent $25,000 over two years on your reward card, would that earn you a $600 return flight from Auckland to Sydney? The answer was no, not for any of the cards. The one that came closest was the American Express Air New Zealand card. It earned net rewards equivalent to $250 – 42 per cent of a return flight to Sydney.

We’d also say that the side perks are pretty good, so do factor them into your decision –  free travel insurance, airport lounge discounts, various extras that make flying a nicer experience, on top of already being for free, of course.

Just don’t try to do any of this on a modest budget, and don’t try to do it if you’re paying that bill in full each month. Seriously: who ever wants to buy themselves their own presents?

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

The post So many credit card rewards, so little time to choose (we’ll help you with that) appeared first on Credit Simple NZ.

We Kiwis are suckers for rewards points. We’ll go out of our way to get a few extra points. But you’ve got to be careful to get the most out of the rewards points in the best way.

It’s not just rewards points credit cards to be careful with. We have wallets full of little plastic and cardboard cards for everything from coffee to Fly Buys. But customer loyalty doesn’t always add up.

Here’s the rub: rewards points do work is if you’re going to buy that item anyway. They also work if you have done the maths you’ve calculated carefully that the points will actually be worth more than shopping around. Otherwise don’t be deluded.

Credit cards

Sometimes our brains turn to jelly at the thought of ‘freebies’. But you’ve got to be careful to check the fees that come with a card as well as the interest rates. Analyse your spending behaviour before signing on the dotted line. If you don’t pay your card off in full each and every month and you’d be better off with a low-interest card. Your rewards points can be eaten up on the interest from one missed payment.

Fly Buys

Kiwis love Fly Buys. When the catalogues arrive by mail we get all excited about the ‘free’ things we can get with our points. Whilst you’re not paying for points at regular shopping trips to the supermarket or when you pay your electricity bill, you are giving your data away. Beware of shopping at retailers solely on the basis of triple Fly Buys or signing up for utilities for the sake of Fly Buys or other rewards cards. Often it’s cheaper to shop elsewhere.

Coffee cards

We’ve all got a bunch of coffee cards or other frequent purchase cards in our wallets. Cafes and retailers use these to keep us loyal. But the basic rule is, do the points add up? If you can get a better deal elsewhere, then don’t be fooled. Also, make sure when you use your ‘free’ coffee that you planned to have a coffee anyway. If not, once again you’ve been fooled into thinking that this coffee is somehow different to one you paid cash for up front. You’ve paid for these freebies.

Petrol points

If you’ve the proud owner of an AA Smartfuel card don’t be lulled into filling up at BP without shopping around first. BP and Mobil do very well out of rewards cards and supermarket vouchers. Have you checked, however, if it’s cheaper to fill up elsewhere? Often it is. Take time to work out which petrol station you pass on a regular basis offers the best prices consistently once you’ve factored in the ‘discount’. Plan to fill up around your trips out in this way and you can save hundreds of dollars a year. Also be very wary of 10c off offers. Invariably the petrol station has raised its base price for that period and you may still be better off buying your petrol elsewhere.

Don’t be a sucker

Beware. Rewards points expire and lots of us never get around to spending them. Don’t let this be you. Make sure when you review your finances (and you should be doing this once a year) that you redeem your points before you lose them.

Finally, don’t be caught by ‘mental accounting’. This is an in-built bias where our brains fool us into putting money from different sources into different buckets that can be spent differently. The reality is that money is money and should be treated the same. That goes right down to rewards points. They’re not found money. Use points tactically by spending them on something you really need rather than want. That’s the sensible thing to do if you want to outsmart your brain’s failings.

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