While rewards on credit cards are akin to getting money for free, they always seem to come with a catch. Australians are always eager to take on a new credit card, especially if they promise rewards such as flights and cashback rewards, only to end up paying much more on interest than they accumulate on rewards. It is possible to accumulate substantial rewards on your daily household expenses without getting yourself into debt by having a proper plan, a basic understanding of your bank’s policies, and a healthy dose of discipline.
Reward Tiers of Credit Cards in Australia
Credit cards in Australia generally offer three types of rewards: frequent flyer miles, generic rewards points, and cashback rewards. Frequent flyer miles are highly sought after by travellers who want upgrades and discounts on international flights. Reward points, on the other hand, allow you to redeem gift cards, electronics, and appliances from a specific rewards store. Knowing what tier of rewards suits you best ensures you use your accumulated rewards instead of letting them go to waste.
Strategic Everyday Spending on Credit Cards
The secret to earning substantial rewards on your credit card is by moving your essential monthly expenses onto your credit card. This would include items such as groceries, petrol, and monthly subscriptions such as internet and TV. By moving these mandatory expenses onto your rewards credit card, you would accumulate substantial rewards without having to change your spending habits at all. The basic strategy here is by deliberately not using your credit card on impulse purchases and items not included in your basic monthly budget.
Avoiding the Interest Debt Trap
Gathering thousands of bonus points is of no consequence if you have a balance on your card from month to month. Australian credit card interest rates are notoriously high and can easily get out of hand. If you incur any interest on your card, it negates any reward points you accumulated for that month. The only way to avoid this is to use your credit card like a debit card. Spend only money that is in your bank account and set up a direct debit for the full amount of your closing balance each month.
Sustaining Long-Term Financial Health
Having your finances in an incredibly healthy state means that you will be able to balance your credit card spending and still enjoy your high-reward lifestyle perks. Credit card providers like ING Australia look for how much of your available credit you regularly use. Having a low balance compared to your maximum credit limit is essentially protecting your overall credit score. You get to enjoy your airport lounge access, free travel insurance, and flight upgrades without letting it hurt your car loan and home mortgage potential.
Master Your Spending Habits
It does not have to be a dangerous financial game. By being aware of your particular rewards program, using your credit card strategically on daily necessities, and paying your balance in full, you can earn rewards without ever paying a single cent on interest. Take a look at your current credit card statements and determine if your spending is aligned with your rewards goals. Plan a more intelligent strategy for your daily expenses!
