Plastic money is on fire. According to the Reserve Bank of India, the number of credit cards issued in India crossed the 50 million milestone in mid-2019. This may appear tiny compared to the developed world – the US has 700 million cards. But credit card usage is growing at a fast clip. The number of card users has grown by 27 per cent in the past one year, an indication of the significant role that plastic money will play in the spending pattern of Indians in the coming years.
Despite the fast growth and the fact that credit cards have been around for several decades, Indians are not very familiar with the features packed into the pieces of plastic in their wallets. There is very low awareness of the reward programs and benefits offered by various cards. Often, this means they miss the offers extended by the card company. Here are some tips on how to derive the maximum benefits from the reward program of a credit card.
Match your usage
There are hundreds of credit cards, each aimed at a specific segment or type of customer. A card that offers higher reward points for online usage will suit people who do a lot of shopping through Ecommerce websites and other digital modes.
If you spend a lot on fuel, get a card that waives the fuel surcharge and offers benefits on spends. Travel a lot? Go for a card that offers lounge facilities at airports along with frequent-flyer points that can be used in the future. Then there are lifestyle cards that offer discounts at select merchant organizations and restaurants. The credit cards not only offer rewards points, but also help you save a minimum of 15 per cent at restaurants. In short, choose a card that offers benefits aligned with your usage.
Check the expiry
In some cards, the reward points accumulated have a fixed validity, ranging from 12 months to 18 months. If you don’t use the reward points within that period, they will expire. When you get the credit card statement, make a mental note of the reward points you have accumulated and make sure to use them up before the expiry date.
Some credit cards allow users to accumulate reward points without any expiry date. But this does not mean you should keep accumulating the points to buy something very big. In the end, these reward points are like cash. If you are not using them, they are losing value. If you can get an item for 10,000 reward points today, the same item will require about 12,000 points 2-3 years down the line.
Convert to cash
It’s always a good idea to redeem reward points for something you need. However, if you don’t find anything of value in the items and services on offer in the reward program, it is best to go for cash. The points are redeemed as cash, which is credited to your credit card account. Though this may not appeal to some users who look to purchase something in exchange for the points, conversion to cash is one of the best uses of reward points on a credit card.
Don’t click on EMIs
Sometimes, card users opt to pay for high-value purchases in easy EMIs. Nothing wrong with that, because the interest charged is 12-15 per cent per year, far lower than the 2-3 per cent you pay per month when you roll over the balance. But if the payment is converted into EMIs, the reward points earned on the purchase are reversed. So, don’t click on the EMI option if you can help it.
A word of caution
Lastly, a word of caution for credit card users. Credit card companies encourage you to spend more by offering bigger rewards and more points if you spend a lot. This might sound enticing, but it doesn’t make sense to spend more only to earn more reward points. Spend only when you must and within your budget. Your credit card usage defines your credit profile and, ultimately, your ability to access credit. If you spend more than you can afford and are unable to pay off in time, the interest and late charges as also the smudging of your credit history will cancel out the gains from the reward points.(The writer is Founder and MD,MyMoneyMantra.com)