The Easy Way to ‘Get Something Back’ – Reward Credit Cards

We are all aware of the dangers of uncontrolled credit card spending where people find that their balance gets out of control due to the very scary downward spiral created by having to pay ‘interest on interest’. Many of the horror stories are obviously true. They do not tell the whole story about credit card use however. Research done at the University of Warwick showed that no less than 58% of all credit card users pay off the full amount on their cards every month.* This means that an awful lot of people are using credit cards merely as an attractive cash alternative and not as a line of credit. It is this market segment that can benefit most from the rise of ‘Reward Credit Cards’.

Reward Credit Cards should not be confused with store reward cards with which you can earn ‘loyalty points’ for every purchase that you make. They are instead fully functional credit cards linked to one of the major credit card networks (e.g. Visa, Mastercard, American Express). This means that there is essentially no difference in functionality between them and the credit cards that you may already have in your wallet. The big difference however is the fact that you will be rewarded every charge that you make to the card. Deciding on which kind of reward credit card you get will depend to a large extent on what kind of rewards you would prefer. The main types are:

Cash:
With this type of card you will get a small percentage of everything (usually around 1%) back from every purchase that you make. This type of card is ideal if you are a ‘heavy user’ of your credit card.

Miles/Travel:
Many reward credit cards are linked to frequent flyer programmes or to travel reward companies (e.g. Airmiles). This means that they offer you the opportunity to convert your rewards into flights and/or holidays. This is a very attractive option that is often used by frequent travellers to further boost their mileage accounts.

Points:
Some credit cards are linked to store reward cards and using the card will earn you extra points (on top of what you would normally earn for shopping) on the store’s loyalty system. This is a great way to make sure that you have something available for that ‘something special’ from the store every now and then.

Reward credit cards is a great idea and the benefits that they deliver are often very desirable. It is however, sadly, often the case that people misuse or misunderstand them by:

• Taking out reward credit cards when they do not pay off their full credit card bill every month. In such cases people’s efforts would be much better spend in finding a better rate of interest rather than chasing after rewards.
• Some people would sometimes spend more than they initially intended to just to be able to earn some more rewards.

Those consumers who can manage to steer clear of the above pitfalls will very often find that reward cards are one of the best ways to ensure that some very special ‘extras’ come their way.

In summary:

• Reward Credit Cards are full-function credit cards offering a variety of rewards
• The most common kinds of rewards are: Cash, Travel Benefits and Store Points
• People who do not pay off their credit card bill every month should avoid reward credit cards.
• Reward Credit Cards should not be confused with store loyalty cards

* Information on the relevant research paper, entitled The Cost of Anchoring on Credit Card Payments, can be accessed at: http://www2.warwick.ac.uk/newsandevents/pressreleases/research_finds_customers146