6-Mar

Credit Card Rewards Traps

Credit Card Rewards & Points Schemes

One of the many traps is the credit card rewards and points schemes offered by virtually all the credit card providers.

The reality is, they do not work for the majority and many investigative journalists, consumer magazines and the like confirm this.

And the charge card providers that are readily available in the mall stores that entice you with interest free offers that soon become debt traps at over 25% per annum – that’s another story which you can read here.

Below we found a Herald on Sunday story that is about four years old, but still so relevant today advising on the pitfalls of Credit Card Rewards Schemes.

Whatever the case, credit and charge cards are full a variety of traps and should be avoided at all cost.  Try us for a debt consolidation loan and be free of them once and for all – apply online.

PS, remember too, Loansmart is 100% Kiwi owned and operated, unlike the majority of the banks and charge card operators in New Zealand.

Loansmart – moving you forward!

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Consumer Watch: Credit card offers don’t add up

Beware: Some schemes cost more in fees than you can get back in rewards

Don’t be sucked in by tempting rewards schemes when you’re shopping for a credit card, says Consumer New Zealand.

Its advice came as competition ramps up among credit card companies in the battle to sign up Kiwi customers.

Airpoints, cashback payments and shopping rewards are among the offerings from card providers.

But consumers have been warned to think twice before signing up for plastic solely on the basis of loyalty programmes, which in some cases require a spend of $30,000 to get $200 of rewards.

Consumer NZ chief executive Sue Chetwin says the hundreds of thousands of New Zealanders who have credit cards would be better off paying off card debt than transferring providers on the basis of earning points for big spending.

The True Cost

“If you don’t pay off the full amount every month, you should be wary about going for all the whizz-bang extras you can get,” Chetwin said.

“You should go for a low-interest, low-fee credit card rather than any of the cashback or rewards schemes.”

Cards with paybacks cost as much as $150 a year at major banks, compared with $30 or less for cards without a scheme. The charge is on top of the interest rate charged on outstanding balances, usually 20-22per cent.

A Consumer NZ survey found New Zealanders spent an average $12,000 a year on credit cards.

For people spending that amount, a third of the cards offering travel and cashback incentives would not earn them more than they spent in fees, and 40 per cent of cards offered shopping rewards.

The Amex Air NZ Platinum was the worst deal for those customers, costing $471 more to own than it would deliver.

Research Compares 21 Cards

Ratings and research firm Canstar had also recently compared the rewards schemes offered by 21 of the most popular credit cards.

Research director Mitchell Watson said it was hard for consumers who were not big spenders to make such schemes pay off.

On a $12,000 spend, just over half the cards Canstar surveyed would cost more in fees than they offered in rewards.

Canstar’s best rating went to ANZ’s Cashback Visa and MasterCard. Consumers can earn back 0.5 per cent of their annual spend if they put up to $10,000 a year on their card, or 1 per cent if they rack up purchases up to $30,000.

Big Spenders

But they are a better deal if you are a bigger spender.

Canstar found that for someone spending $24,000 a year on their cards, only the American Express Platinum Charge Card’s rewards programme would not deliver enough rewards to make the annual fee worthwhile. It costs $1250 a year.

Canstar says the average reward return for a consumer spending $24,000 this year is $121.20 a year, up from $116.20 last year.

One of the biggest moves in the rewards scheme market occurred last month when Air New Zealand said it would no longer offer airpoints to BNZ credit card customers and signed with Westpac.

Shoppers will earn one airpoint per $120 spent on a Westpac Airpoints MasterCard.

The card costs $55 a year, $10 more than the bank’s standard Hotpoints card, and customers will have to put $24,000 on it to earn enough points for a $200 airfare.

But they are getting a better deal than with BNZ; they had to spend $30,000 to get the same $200 of airpoints with a GlobalPlus MasterCard, which also cost $55.

BNZ is introducing a new cashback offer where customers get $1 back for every $150 they spend on a standard card – or $200 for every $30,000.

It will continue to offer Fly Buys on its home loan products and offer cashback rewards to GlobalPlus home loan customers, too.

Credit Card Rewards Traps
Credit Card Rewards Traps

An apparent plus may be a minus

Elisha-Jane Williams and her husband, Aaron, signed up for a credit card based on its rewards scheme.

But in the past 2 years, the Palmerston North pair have accrued only 20,000 points on their Westpac hotpoints MasterCard – enough to buy $250 of goods.

The most the couple spent on their card each month was $1,000. Some months they don’t buy anything with it.

Consumer New Zealand estimates that Williams’ card leaves her $21 out of pocket over two years if she spends $6,000 a year on it.

Williams said she was surprised. “It’s probably pointless us having one.” Her most recent rewards purchase was a stick blender.

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