How Do Reward Credit Cards Work?: part 2
Reward Credit Card Best Buys
Reward Credit Card FAQ's
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The real value of points...
Cash back credit cards and charity credit cards are fairly straightforward in terms of how much your spending is really earning you.
However, reward credit cards that offer points or miles are not so simple, and the actual value of different reward schemes can vary dramatically.
Aside from the monetary value of each point or mile, the number of points or miles you earn per pound will also play an important factor in how much each reward scheme is really earning you.
While reward credit cards will let you know how many points or miles you will earn for your spending, they will rarely let on exactly how much their points or miles are really worth.
Working out the true value of each reward scheme can become a pretty arduous task - and one that few people will be likely or willing to do.
Luckily, consumer information services like ChooseMoney.co.uk have already done the hard work for you - telling you not only how many points or miles you'll earn based on your individual spending amounts, but also how much those points or miles are really worth.
To use this calculation service please visit our reward credit card comparison page, where you can enter how much you spend on your credit card each month, and find out which reward credit card will offer you the most back on your spending.
How to keep your rewards free
It's very important to repay your balance in full each month when using a reward credit card.
The interest rates charged on credit cards, even the cheapest ones, will always outweigh the benefits of any rewards you're earning on your spending.
Repaying your reward credit card balance in full each month not only keeps you on top of your finances, but it will also keep the rewards you earn completely free.
The easiest way to manage your reward credit card payments is to set up a direct debit to pay the full amount on your card statement each month.
What you should be aware of...
- Avoid using your reward card for balance transfers and cash withdrawals
Reward credit cards will not pay out any rewards for balance transfers or cash withdrawals.
Balance transfers should also be avoided on reward cards due to the way card issuer's will allocate the payments you make to your account.
When you make a payment to a credit card, the card issuer will usually only allow your payment to go towards your cheapest balance first, e.g. balance transfers, leaving any standard or higher rate balances to accrue interest until your cheap debt is repaid in full first.
If you need to transfer a balance, you should take out a specific balance transfer credit card, and unless it's also suitable for spending - you should not spend on the same card.
Cash withdrawals carry their own problems too. Very rarely will cash withdrawals be included in the interest free period. So if you do withdraw cash on a reward credit card you will be charged interest from the date of the transaction - even if you repay your balance in full.
This interest charged, and also the handling fee cash withdrawals carry, will usually outweigh any of the reward savings you may have earned on your purchase spending.
Remember to always use your debit card for any cash transactions, including ATM withdrawals, getting 'cash back' at the supermarket, buying foreign currency or traveller's cheques or gambling transactions.
- Repaying your balance in full
As mentioned above, it's incredibly important to repay your balance in full each month.
Not doing so will effectively remove any of the money-saving benefits of the rewards you have earned on your spending, because any interest charged on an outstanding balance will always outweigh your rewards.
Make use of the interest free periods on credit cards. Which, when you pay off your balance in full each month, mean that you won't be charged any interest on your purchases.
- Annual account management fees
Few credit cards charge annual fees these days, however they are often found on flyer mile reward credit cards.
The annual fee is a fee charged yearly just for holding the account, and if charged, they are an added cost that should be taken into consideration.
- Reward expiration dates
When you earn points or miles on a reward credit card they sometimes have expiration dates - a set number of years the points or miles will remain valid.
If the reward credit card you choose has expiration dates on the points or miles you are earning, it's important to find out how long you have to redeem them whilst they are still valid.
- Always play fair!
Credit card companies always put terms and conditions in place on any deal they offer cardholders.
This is their way of making sure they can get their money back if you don't play fair.
To keep your rewards safe, always make sure you are never late with, or miss a payment, and that you don't exceed your credit limit.
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