Points credit cards can look like an attractive option for Australians looking to make their spending stretch further, particularly as many people plan their next overseas trip.

But access to rewards like frequent flyer points and retail gift cards can come with serious risks if you’re caught unaware, and it can even be difficult to work out whether all the fees are worth it.

First, points credit cards come with massive interest rates – often higher than 20 per cent – and usually several hundred dollars in annual fees that must be paid before you redeem any rewards.

And then you need to think about what you will actually use the points for, including whether the frequent flyer program attached to a card offers better value than just buying a flight normally.

Don’t treat it like a credit card

Dawn Thomas, a senior financial adviser at TWD, said it’s easy for consumers to get confused by points cards, which can land people in trouble if they go into a contract without a plan for spending.

Australians shouldn’t consider getting one unless they will treat it like a debit – not credit – card, paying off spending as you go from your existing savings pool, Thomas said.

That’s because even one missed bill payment could cost you dearly, enough to wipe out any benefit from the rewards points you get.

“If you’re using these rewards cards you need to have very strong cash flow management behind you,” Thomas said.

“You don’t want to be incurring the purchase interest rate on these cards.”

Thomas pointed to 2018 Reserve Bank figures which found the majority (60 per cent) of credit card customers are paying more in fees and interest than they’re getting back in rewards.

“It is not the right product for most,” Thomas said, adding that you need to have highly structured finances and be disciplined about not overspending.

Plan your spending

The real allure of points cards are the promotional offers that can net a significant amount of extra points if you manage to spend enough money on the credit card.

The market is rife with such deals at this time of year, but Canstar finance expert Steven Mickenbecker said some of the thresholds can be thousands of dollars and could induce you to spend money you otherwise wouldn’t have.

So it’s crucial to plan ahead of time and know what you can responsibly purchase over the deal.

“If you have a large spend coming up then it can be worthwhile,” Mickenbecker said, citing necessary household purchases like large appliances.

Before getting a card, work out what spending earns points and how much of that you’re likely to do before factoring in any major purchases (expenses like grocery bills are a good example).

Check the terms and conditions carefully because spending on some essentials like rent and utilities can be excluded, or earn points at a much lower rate than retail spending.

See how far that gets you towards whatever promotional threshold you’re shooting for, and then consider any other major spending you might need to do over the coming months and add it in.

If that gets you across the line, then it’s possible the card could be worth it.

In general, it’s worth remembering that cards with higher spending offer better returns; with the difference between $1000 and $3000 in monthly spending being worth hundreds in net returns (explained below).

What are rewards worth?

The other thing to consider is what you can use the rewards points for, and crucially what they are worth relative to the annual fee you’re paying on the card.

Canstar has created a model for trying to work out the dollar value of points rewards, which Mickenbecker said is a useful way to think about whether a particular deal might be worth it.

Basically, they’ve calculated the dollar value of rewards received for spending a dollar on a card, based on the market value of those rewards, such as flights and retail gift cards.

“What is the flight worth that you’re getting?” Mickenbecker asked.

“Qantas might say the flight is worth $500 [their price], but if you can get it at $200, then we say it’s worth $200.”

In other words, determining the value of your points isn’t just about whether the frequent flyer points you are receiving are worth the annual fees.

You also need to consider whether you could pay less for those flights if you simply bought them from another airline.

Lastly, don’t forget to factor in hidden costs, including any aviation taxes you might need to pay as an excess while using frequent flyer points, and retail surcharge fees when using a card.