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2.5. Rewards

Some credit cards are linked to reward programs that earn you points for every dollar you spend. There are credit cards linked to existing reward programs, such as Qantas Frequent Flyer, as well as custom reward programs set up by credit card providers, such as the Commonwealth Bank Awards program.

When you earn enough points on a rewards card, you can exchange or redeem them for things like plane tickets, hotel stays, jewellery, household goods, gift cards and even cash.

The points you earn from using a rewards credit card and the points you need to get a particular reward vary a lot, so it is important to consider these factors before choosing this type of card. Depending on your circumstances, it may be more affordable to choose a card without rewards.

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2.5. Rewards

Case Study: Serena’s Smart Rewards Card Strategy

Serena uses her current credit card for most purchases and pays off the balance in full every month but doesn’t really get any other benefits from it, so she decides to look at getting a credit card that also earns reward points. Before choosing a card, she takes the following steps:

  1. She works out that she spends an average of $5000 per month on her card.
  2. She regularly flies with one airline and is already part of their frequent flyer program, so she focuses on credit cards that also earn frequent flyer points.
  3. She compares the different extras that each card offers; and
  4. She considers the cost of the annual fee and interest rate (in case she ever carries a balance).

With these details, Serena chooses a credit card that earns her one frequent flyer point for every $1 spent and comes with complimentary international travel insurance.

The card also has an interest rate of 20.99% p.a. and an annual fee of $300, but the value of the rewards (around 60,000 points per year) and complimentary travel insurance mean that Serena still ends up better off with this card than with her previous one.
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2.5. Rewards

Case Study: Thien’s Reward Card Risk

Thien regularly spends around $3000 per month on his credit card and usually pays the balance in full each month. His bank offers him a rewards card based on these details and he decides it could be a good way to get more value out of using credit.

His new card earns 2 points per $1 spent towards a custom rewards program set up by his bank. It also has a purchase rate of 20.99% p.a. and an annual fee of $100. Thien works out he could earn 72,000 points per year based on his current spending habits.

After a few months, Thien starts using his credit card more often to increase his points. He also ends up carrying a balance of $4000 for half the year and only makes minimum payments. At the end of the year, Thien has spent over $400 on interest charges. Instead of getting value from his rewards card, Thien has paid more because of it.