Are credit card rewards really worth it?

Avocado and toast and Sundays and sleep-ins – some things are made for each other.

But when it comes to credit cards and rewards, are they really a good match?

Credit card rewards can be a good way to turn your spending into ‘freebies’.

From coffee machines to cash back to frequent flyer points, many credit cards will ‘reward’ you for spending.

But rewards credit cards aren’t for everyone.

In fact, that ‘free’ toaster may end up costing you thousands.

How do rewards credit cards work?

Rewards cards all work a bit differently but essentially you earn points or cash back when you spend on your credit card. You can then redeem these points for travel, gift cards, cash back or merchandise like toasters.

But what’s the catch?

Those rewards card perks such as points and ‘complimentary insurances’ come at a cost.

Rewards credit cards often charge a high annual fee that can cost up to $450 and high-interest rates of up to 20.99 per cent on purchases, ouch.

Compare these costs to a low rate non-rewards credit card like Frank and the rewards may not be worth it – especially if:

• You don’t spend enough to earn enough points to redeem for anything worthwhile
• The points expire soon after you earn them
• You don’t pay your credit card balance in full within the interest-free period
• It’s impossible to find a rewards seat on a flight to redeem your points for
• You don’t earn enough points to offset the high annual fee.

The value of a point

In addition to higher annual fees and interest rates, often the points you earn aren’t worth much and you need to spend a lot in order to earn enough points to redeem them for something.

Did you know for instance:

• To earn a $100 Myer gift voucher with a typical rewards credit card, you would need to spend roughly $25,000?
• To get a coffee machine worth $399 with a typical rewards credit card, you would need to spend roughly $110,000? That’s a very expensive latte
• To receive two adult Hoyts cinema tickets with a typical rewards credit card, you would need to spend roughly $12,000? (Imagine how many choc tops you could buy with that).

Rewards credit cards are cleverly designed to encourage consumers to spend in order to earn points.

You shouldn’t have to increase your spending to benefit from a rewards scheme; it should complement your existing lifestyle and financial situation.

So, before you’re seduced by ‘free’ flights to far-flung destinations, the latest coffee machine, vouchers and cash back, crunch the numbers to ensure you know the true value of your points and that you’re not getting stung by high fees or exorbitant interest rates – because that ‘free’ trip to the movies could end up costing you a lot more than the price of a cinema ticket.

Terms, conditions, fees and charges apply. Applications are subject to credit approval.

This article originally appeared here.