Is It Worth Having a Credit Card for Its Rewards Program?
A major advantage of using credit cards is the rewards, cashbacks and discounts they offer. Credit card reward programs allow you to accumulate points, which you can later use to redeem various types of rewards. You can earn these rewards by using your credit card for expenses like groceries, fuel, travel and luxury shopping.
The more you use your credit card, the more reward points you will get, which lets you get more rewards of your choice. This brings us to the question, are credit card worth it?
Features Offered by Credit Card
Let’s look at some distinct factors that make credit cards one of the best debt facilities
- Pay Off Large Purchases Efficiently
Were you ever restricted by your savings while purchasing something expensive? If yes, then a credit card could have helped you out. It lets you avail funds whenever you need them.
You can also opt to pay off large purchases by breaking them down into monthly payments or EMI. This way you no longer have to exhaust your savings at once. Rather, you can pay off a part of your purchase in a recurring manner. These EMIs might have higher interest rate.
Furthermore, big purchases on credit cards can earn you larger reward points and perks like cashback, discounts, air miles and many more.
- Avail Easy Cash
Credit cards can help you get access to easy money when you run out of savings or cash through ATMs. Although it might not be the best decision to avail cash withdrawal through credit cards due to the applicable charges, it is a useful facility for times of emergencies.
You can access cash through any ATM and pay back the debt later including the cash advance fee.
- Build an Impressive Credit Score
Your credit score is used by creditors or debt issuers to determine your creditworthiness based on your credit history and behaviour. If you have a long credit history involving timely repayments, it will contribute to your credit score, eventually making you a low-risk borrower.
Therefore, if you maintain a long-standing credit history with one or multiple credit cards and pay your bills timely, you can get an excellent credit score. This will let you quickly access loans on favorable terms like low-interest rates and long tenures.
- Lifestyle Perks
Co-branded credit cards add more convenience for brand-loyal customers. This helps them earn special benefits which they can utilise. For example, co-branded credit cards sponsoring airlines can help you earn air miles which can be redeemed to avail discounted or free air tickets. This is a perfect option for frequent flyers.
The same goes for other sponsored ventures like restaurants, hotels, sports agencies, etc. You can choose a co-branded credit card that fits your lifestyle and expenses.
However, you will have to religiously follow a particular brand and be a part of its loyal customer base to claim such rewards.
- Earn Insurance
These benefits may not apply to credit cards with a low credit limit. However, some credit cards offer accidental death coverage, fire insurance, rental car insurance, smartphone protection, etc., to borrowers spending a specified amount annually via their credit card.
With this facility, you don’t even need to pay any additional premium to avail necessary financial coverage.
- Avail International Transaction
Credit cards can also help you go cash-free on an international trip. You can access any ATMs abroad to withdraw cash in foreign currency. However, the service charges and interest levied on such transactions are quite high. Therefore, you must shop for credit card issuers offering better deals, and remember to thoroughly go through the terms and conditions.
Factors to Check Before Applying for a Credit Card
Now that you know about how credit cards can come in handy while making purchases, keep in mind the following things when choosing a credit card.
- Annual or Joining Fee
Before you register for a credit card, you must check for the annual maintenance and joining fee. You must carefully compare your earnings to the credit card expenses, to check if you can afford a premium card. Some issuers waive the joining fee and the annual fee for the first year.
- Rewards Rate
Reward rates are the number of reward points you can earn per unit transaction. This may vary as per different credit cards. For example, the SBI SimplyCLICK credit card offers 1 reward point on every ₹100 spent, whereas American Express SmartEarn offers 1 reward point on every ₹50 spent.
You must also check for the redeemed value of the reward point. Different credit cards carry different values for their reward points. Assess if the card offers the maximum value for your purchases.
- Redemption Option
Every credit card issuer has a distinct policy when it comes to options for redeeming reward points. Some may offer vouchers or coupons; others offer statement credit, whereas some issuers offer both features. You must choose the card issue that best caters to your requirement. It is recommended to select a card issuer offering the most flexible redemption options.
- Your Spending Frequency
Credit cards are generally for people who are frequent shoppers; this helps them compensate for the interest rates through rewards and cashbacks. However, if you are not a frequent shopper, and do not feel the need to use credit-oriented facilities, then a credit card may not be worth it for you.
- Applicable Charges
Credit cards are debt facilities, which allow cardholders to borrow money, and pay them back with added interest. However, there are a number of applicable charges for credit cards, including foreign transaction fees, renewal charges and high interest rates which may offset any benefits. In that case, it won’t be a smart decision to apply for such credit cards.
Therefore, while you are out shopping for a credit card, look for deals which do not put too much strain on your pocket, and offer lucrative rewards.
- Reward Point Validity
The reward points offered by CCs may not always be inexhaustible. Some have specified expiry dates. Therefore, you must check for the reward point validity and figure out if you can accumulate enough points to claim larger rewards.
Should You Apply For a Credit Card for Its Rewards?
The sections above must have made it quite clear by now that credit card rewards can be worth it only if you are confident enough that it adds to your lifestyle. Analysing your spending habits is very essential.
For instance, if you love travelling, you should opt for credit cards offering maximum rewards on travel-oriented purchases. Similarly, if you love shopping or eating at expensive restaurants, you may opt for a credit card offering benefits and perks on hospitality services. If you love watching movies and sports, a credit card offering free subscriptions would fit best for your requirement.
This way you can choose your preferred credit card provided, based on their sponsored brands or the kind of rewards they offer which would make them worth it for you.
By now, you must have a clear idea of the kind of credit card you would like to apply for. As a cautionary, you must remember that credit cards can be enticing at times, due to the availability of easy cash. However, you should always ensure that your credit card usage never exceeds ~30% of your credit limit, as it might put a mark on your credit score.
Frequently Asked Questions
- What are the interest rates on credit cards?
As per Forbes, the interest rates on availing credit cards in India may range from 13% to 48% per annum, depending on the card network.
- What are EMIs on credit cards?
Some credit card issuers provide borrowers with the option to convert their purchases into Easy Monthly Instalments. These are generally for expensive transactions like smartphones, PC, vehicles, etc. EMIs might have high interest rate.
- Can I use credit cards for daily use?
Although you can use credit cards for everyday use, you must ensure that you don’t overspend. Otherwise, wisely using credit cards regularly can help you build your credit score.
- Can I use co-branded credit cards for purchases outside the brand-oriented product?
Yes, co-branded credit cards offer hybrid debt facilities. Therefore, you can use it like any ordinary card. However, the exclusive rewards may only be limited to sponsored brand-limited products.