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In a world governed by finances, it’s often all too obvious that we need to make our own money work harder for us. Everyone likes to get the best possible interest rate or return on investments, with hard earned money tucked safely away. However, we also need to spend money, and anything saved at the point of transaction will reap rewards later on.
All of us have the capacity to reap at least some gain from a rewards credit card. First, we need to understand the name and nature of the card. Rewards are gained over time, with good financial management, while the card is used for as many transactions as possible. A large number of Australians earn and spend sufficiently to justify owning a rewards credit card. At this point we need to be warned that any card payment default or late payment will incur a fee or other penalties that will nullify rewards earnings.
Choosing a credit or debit card
There are more than 16 million credit cards in circulation around Australia. Some of these cards are accruing interest while others are harvesting only debt. Sound money management coupled with reasonable income is essential in avoiding credit card debt. Substantial rewards are unobtainable unless the card owner spends many thousands of dollars.
A debit card, on the other hand, is ideal for people with a limited savings cushion to offset financial hardship. Debit cards are also accepted by major credit card companies as a payment option. They are extremely versatile and don’t incur penalties associated with credit cards. In fact, debit cards are the more popular card overall, with more than 40 million in circulation around Australia.
Reaping what you spend
By now it should be clear that rewards credit cards, although not elitist, are most profitable for people with plenty of spending power. This market share is still a fair percentage of the Australian workforce, with top earners utilising rewards credit cards to support their lifestyle or business. The flexible nature of rewards cards is what makes them a sustainable proposition. Rewards can be redeemed in the form of air points, gifts, accommodation, cash back and more.
Rewards cards not for everyone
Banks have a small financial margin enabling them to reciprocate with bank customers. It’s in their best interest to keep major customers happy. Rewards credit cards are equal opportunity, but the advantages are obviously skewed toward the wealthy. To put things in perspective, the average person needs to spend tens of thousands of dollars in order to receive only $200 in rewards.
Annual card holder fees are also often much higher for rewards cards. Major bank rewards card fees can be $150 per year, while cards without a rewards scheme are closer to $30 per year. Add to this the high interest rate on outstanding balances of rewards credit cards, and we realise the commitment required to transform expenditure into savings.
A little research can pay dividends
A comparison of major rewards credit cards reveals that they are only really useful in the hands of a big spender, or whoever else is in charge of the company purse-strings. Spending less than $30,000 per year will barely result in a profit after annual fees are taken into consideration.
On the other hand, if we do the maths, it’s easily understood that accrued points can definitely be transformed into a value-added lifestyle.
After all, if spending $30,000 results in a reward of $200, then spending 3 million dollars will result in $20,000 worth of rewards. Spending money to make money is definitely easier for the wealthy. Rewards credit cards are worth it, but for now, many of us need to make ourselves financially worthy to take advantage of the situation.
It’s important to keep an eye on special offers, when new card applications receive a huge point bonus and sometimes the annual fee is waived for the firs year. Just this morning as I finished writing this post, Westpac released its new credit card offers and they give 50,000 points for new rewards credit cards and the first year is free. Based on my rough calculations, that 50,000 points worth around $242, which is not bad at all.