5 tips for using rewards cards wisely

By Marianne Curphey

There is a huge range of reward cards that promise vouchers, money off deals, points, spending power and free flights in return for spending. Used wisely, these cards can offer you great freebies as a reward for your normal spending. The secret to success is to be aware exactly what you need to do to earn your points, and to make sure that you don't overspend to achieve them.

"Currently 39% of credit cards come with some form of reward: 29% offer rewards points and 10% offer cash back," says Andrew Hagger of MoneyComms.

He says providers have become more innovative with their deals. The Santander 123 card pays varying amounts depending where you spend, an MBNA More Rewards account comes with both an AmEx and Visa card -- which increases the number of places you can use it and earn -- and Barclaycard pays enhanced cash back on your five biggest purchases each month.wise-rewards

However, Hagger warns, many of the most competitive cashback credit cards now come with an annual fee.

He points out there are potential drawbacks with many of the top cards too -- Santander 123 is fine for petrol, supermarkets and department stores, but if you pay for flights or a holiday online, you wouldn't get any cash back.

"Similarly, Barclaycard pays 2%, but only on your biggest five items each month," says Hagger. "The AmEx Platinum Cashback has a generous cash back rate, but AmEx isn't as widely accepted as Visa or MasterCard, so there may be instances where you can't use it."

Here's how to make the most of reward cards:

  1. Check the small print
    Some special offers require you to spend a minimum amount to qualify for the rewards. A card may offer a heap of bonus points just for signing up, but you may have to spend £1,000 in the first three months to get them. Some cards will offer 2% cash back, but only on purchases made in the first few months.

    These bonuses may sound appealing, but might not be so attractive when you discover the prerequisites. Make sure the rewards outweigh the spending requirements.

  2. Don't apply for too many cards
    Rewards can seem tempting, but if you try  to juggle too many cards  you may overspend or have a hard time keeping track of your payments, thereby damaging your credit rating.

    "With rewards credit cards, try to limit yourself to just one or two cards," says Hagger. "If you spread your spending between a wallet full of different reward cards it'll take forever to get a meaningful return on each."

  3. Pay your bill in full every month
    The interest payments almost always outweigh the benefit of the rewards, so don't get caught out this way. "As long as you understand how you earn rewards, these cards can work well," says Una Farrell, of StepChange debt charity, a free advice service for consumers.

    She says it is always a good idea to pay off the balance in full every month, so you didn't get charged interest.

  4. Make sure you are signing up to rewards that you will actually use
    Ask yourself whether the rewards are really going to be useful to you. "When choosing a rewards card it makes sense to opt for a card issued by the store where you do a large portion of your shopping -- e.g., Tesco Clubcard or Sainsbury's credit card," says Hagger. "You'll soon build up your points via regular spending, plus you'll also be able to take advantage of other promotions in-store as a cardholder."

  5. Don't increase your spending or change your shopping habits in order to maximise your rewards
    Use your card for normal spending; don't go mad. (Bear in mind balance transfers usually don't count -- it has to be new spending.)

    "I put all my grocery shopping on my card," says Yvonne Goodwin, independent financial adviser and planner at Yvonne Goodwin Wealth Management. "If you are organised with your finances and you can keep track of your spending, then using a credit card for everyday expenses and earning rewards can be a very beneficial way to manage your money."

    If you don't count yourself as well organised, using a debit card or cash might be wiser, she says.

    All rewards programs are advertised to look great, but make sure you consider all aspects before you sign up for a card. Don't fall for a rewards program that goes downhill after a few months, and make sure it's the best plan for your lifestyle.

    "It's still possible to get something for nothing if you use your plastic wisely," says Hagger.

See related: 4 traits that make you a good rewards card candidate, 3 rewards card mistakes that lose you money

Published: 11 July 2013