Are credit card reward points worth it?

Most of us judge a credit card based on the benefits that the card issuer promotes. However, at its core, the major benefit on a credit card comes from its rewards structure. You can earn reward points, air miles or loyalty points on every purchase and the accumulated points can later be redeemed against gift cards, discount vouchers, merchandise, etc. When used strategically and responsibly, credit card rewards can help you save a substantial amount on your regular purchases. However, not everybody knows how to maximize the rewards on their credit cards. 

So, let’s answer some of the common queries about credit card rewards and how even a new user can make the most of the program.

What are rewards credit cards and how do they work?

Essentially, all credit cards that reward you in one or the other form can be considered as rewards credit cards. Every time you make a purchase using the card, you can earn some reward points, air miles or loyalty points. The points are generally tied to your credit card account. Unlike cashback, which is credited directly into the card account or to a linked loyalty program, reward points are accumulated in your card account and they can be redeemed against a number of options. 

Most rewards credit cards in India offer points at a base rate along with extra earnings on bonus categories. HDFC Regalia Gold, for example, offers 20 reward points for every Rs. 150 spent on Myntra, Nykaa, Reliance Digital and Marks and Spencer whereas all other categories will only earn 4 reward points for the same amount of spends. Some credit cards could also offer an accelerated earning rate when you reach a particular spending milestone, such as the IDFC FIRST Millennia Credit Card.

Moreover, co-branded cards might offer loyalty points in place of general reward points, which can only be used at the associated platform. For example, Axis Vistara Credit Cards offer CV Points and Marriott Bonvoy HDFC Credit Card provides Bonvoy Points. CV Points can be utilized to get award flights or class upgrades when booking Vistara Flights whereas Bonvoy Points can be redeemed to get a discount when booking stays at participating Marriott properties.

In addition to the regular reward earning on card usage, you can also earn bonus reward points on hitting spend milestones or on joining and renewal. This windfall of substantial reward points can make a big difference to your savings.

How to maximize the reward points on your credit cards?

Every time you make a purchase using your credit card, you can earn reward points. However, this does not mean you should spend beyond your means just to earn more rewards. Here are a few things to keep in mind, which could help you make the most of your credit card’s reward program:

Focus on accelerated category: As most credit cards offer accelerated reward earning on select categories or brands, you must focus on maximizing this benefit. Understand your card’s rewards program and strategize your spends in such a way that you earn highest rewards for your spending. For example, if a significant part of your monthly spends goes towards fuel, you should choose a card from the best fuel credit cards, which will help you save in the form of cashback, rewards or co-branded benefits.

Try to achieve milestones: As mentioned above, some credit cards may also offer bonus reward points on achieving spending milestones. For instance, American Express Membership Rewards Credit Card offers 1,000 bonus reward points on making four purchases worth Rs. 1,500 or more within a month and additional 1,000 points if the monthly spends exceed Rs. 20,000.

Consider the redemption rate: Reward points have a monetary value, which can range anywhere between 10 paisa to Rs. 1. If your card lets you earn 4 reward points per Rs. 100 and each reward point is worth 25 paisa, you can get reward points worth Rs. 100 on spending Rs. 10,000. You should consider a card that allows you to earn more rewards as well as gives you a higher redemption value for each reward. Often, co-branded cards offer a higher redemption value when you redeem them on the associated brand’s platform.

When should you consider alternatives to rewards credit cards?

While rewards credit cards can help you get a considerable value back, the process of accumulating points and redeeming them later can seem a little complicated for some people. Such users should consider opting for a cashback credit card as value back is directly credited into the card account.

A few credit cards also offer direct discount instead of reward points or cashback. Since the discount can be availed only on select brands, such cards would be helpful for users who only want to save on the associated brands. 

One of the major drawbacks of rewards credit cards is that you are tempted to spend more in order to earn more reward points or to reach milestones that would give bonus points. However, this could lead to debts going out of hand resulting in high interest charges and other penalties. If you run into debt while earning rewards, the overall costs will be higher than the benefits you get. Hence, it is advised to spend only as much as you can afford to repay on time.

Finally, if you are looking for the right rewards credit card, you must check the categories on which you get the best rewards and see if you would be able to spend on those categories. A card that matches your spending preferences will give you the best value. 

Also Read: How to choose the right credit card: Answer these 7 questions