by John_S on September 20, 2010
Reward credit cards are financial instruments that reward card holders for using them. The company literally pays you for spending money on its cards. You can get goods worth up to a thousand dollars a year for free if you get the hang of it, but you should be cautious nonetheless. The most important point to be careful about is the annual interest rate. It is as high as 20 percent on some cards. Always follow the rule of thumb: pay off the card in full each month (and make sure the company knows and acknowledges that you have done this) so that you are not charged interest. If you are not sure that you’ll be able to do it, then the reward card is not the right for you!
Almost all reward cards require applicants to have an excellent credit rating; so, if you have existing credit card debt, make sure you clear it. Once you are approved and issued a reward card, you need to make yourself familiar with the so called scheme. Rewards schemes include earning money for holidays, buying CDs, flight tickets, gift cards and certificates, and more. The Bank of Nova Scotia, for instance, offers three types of reward cards: ScotiaGold Passport Visa, SCENE Visa, and ScotiaHockey Visa. The first card comes with an annual fee of $110 and interest rate at 19.5 percent. Customers using this card earn 1 reward point on every dollar in purchases. Clients who use the SCENE Visa get a $0 annual fee and interest rate at 19.5 percent against the privilege of earning reward points (1 point for $1 dollar in purchases). Finally, ScotiaHockey allows customers to earn
bonus points that can be redeemed for hockey merchandize and services. Its annual fee stands at $49, and the interest rate is 19.6 percent. In any case, avoid these schemes if you are novice in the field of banking: they can be tricky. Sometimes, the scheme seems to allow you to win points, but you get so little as to render the whole initiative meaningless.
Other more beneficial options are the cash back or cash-lite card schemes. The former involve earning money every time you use the card. The money is paid out in a lump sum once a year. The latter option differs in only one way: you get the money, but you can spend it only at a specific place, like a given franchise.
Some companies try to tempt customers with various transfer balance proposals. Never fall for this! Balance transfer involves transferring debt to the card or withdrawing cash from it. The fact that you don’t earn money for doing this is the most minor of its disadvantages (only making payments with the card enables you to earn money). In some cases, there are actually penalties for using the card for something other than charging. Transferring debt to the card AND spending on it is something of a double whammy – it is highly unlikely you’ll be able to repay the card in full.
Finally, make sure you use the card for all spending. Never pay in cash, check, debit or other credit cards if you can help it. Every time you use the reward card, you get paid! All that matters is that you pay off the card in full each month.
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