If used wisely, credit cards can help you get up to 10% return on your spend
CREDIT cards are often blamed for debt woes as well as other consumer-related ills prevalent in the society. In reality, however, most of such woes result from the misuse of plastic money or the ignorance of the consumer himself. Of course cards come with the convenience of shopping now and paying later. But that's not all. In fact, if used wisely, cards can be powerful tools that can, among others, help you get up to 10% return on your spend.
Welcome to the world of loyalty programmes! However, before we learn how to choose the right loyalty program, let's understand what these programmes are and how do they work.
Most loyalty programmes work by giving card members 'reward points' for spending on their card. In the card industry parlance, this is called 'Earn'. These earned points can then be redeemed (or 'burned') for travel, shopping, dining and entertainment. "Many of us dismiss these programmes as marketing gimmicks, but the fact is that on the whole, these programmes are scientifically-designed frameworks that work for the benefit of card members, merchants and card companies. In fact, reward points are becoming the new form of consumer currency and increasingly, savvy customers are swapping them, donating them and redeeming them in a wide variety of ways," says Shailesh Baidwan, CEO of American Express.
It's, however, easy to get confused by the proliferation of loyalty programmes in the marketplace. A wrong choice more often than not will not give you the intended benefit due to unimaginative or needless redemption choices. You'll, therefore, stand in good stead by investing a little time to understand which plastic provides you the best returns and helps you earn while burning. In the long run, you will have more benefits earned and less money spent. So here is what you should watch out for when choosing a programme:
While choosing a loyalty programme, card members should evaluate the programme on their 'earn' and 'burn' rate.
EARN RATE—POINTS EARNED ON SPEND
Normal Earn: As a part of the product value proposition, most of the card companies offer reward points for spending on cards. "Typically, a card member can get one point per 40-200 spent. This, however, depends on the card and the bank," says Baidwan. American Express, for instance, gives one point per 40 spent on its cards. HDFC Bank Titanium Credit Card, on the other hand, lets you accumulate two reward points per 150 spent up to 15,000 per statement cycle while for incremental spends above 15,000 in a statement cycle, you can earn 50% more reward points, ie three reward points per 150 spent. Similarly, Citi Cash Rewards Credit Card lets you earn five cash reward points on every 200 spent on weekends and one cash reward point on weekdays.
Some programmes, however, don't give reward points on certain categories of spend, like fuel-purchase transactions. Customers should carefully study the exceptions and check the value (ie the earn/burn ratio) of these points
Bonus points:
Some programs offer bonus points programs, allowing customers to earn double, triple or even 10 times the points for the same spend. Check if restrictions apply such as a limited period offer, for all spend or limited to selected merchants and try to maximise your earnings.
Don't forget to check the lasting power of your points: All your hard work would go waste if your points expire. Select programmes offering non-expiry points as non-expiry points allow customers to accumulate points from year to year.
If you have one of those programmes where points do not lapse, great—target the big buy like a home theatre system or a car, and make sure you make all purchases on the card so as to accumulate maximum points in the minimum period of time.
BURN RATE—VALUE & RANGE OF REDEMPTION
Check reward categories: Most of the programes have started offering a range of redemption options, including garments, home appliances, cosmetics, gift vouchers, and donation to charities. However, you should choose the programme that offers maximum number of redemption options that suit your lifestyle needs.
Conversion to air miles:
Some banks now offer an option to convert reward points to air miles, enabling their customers to buy air ticket from their reward points. Check if both domestic and international airlines are covered under the programme.
Conversion to air tickets:
This feature allows card members to instantly redeem membership rewards points for any leading airline ticket.
Minimum points required:
Also compare the minimum number of points required for rewards. A programme that offers one point per 100 spent and rewards start from 2,000 points, for example, is a better deal than one that offers two points per 100 spent and rewards start from 20,000 points.
Reward fulfillment:
Customers should look for a programme that offers easy-to-use rewards redemption processes and faster delivery of rewards. Some loyalty programmes provide convenience of web-based redemption, home delivery and online order tracking. Reward delivery time can be anywhere between three days to two months. One must avoid long delivery times by choosing a right programme.
Look for flexible points plus pay option:
To speed up redemption of rewards, some loyalty programmes given points plus pay option ie customers can simply use their accumulated points and pay the balance to get their desired reward.
Spend vs reward redemption potential:
Compare the value of reward against spends. The value of a point can be calculated by checking worth of the reward against spends made to earn that reward. Therefore, customers should chose a programme offering higher reward earning potential.
USING LOYALTY PROGRAMMES OPTIMALLY
Now that you know how to choose the right loyalty programme, let's understand how to use them optimally. To make loyalty programmes work best to your advantage, you need to plan a bit. Here are few simple steps to earn your rewards faster:
Consolidate your spending:
Consolidate your spending with a single card so that you can accumulate your points faster. Big ticket items (especially family-related spending) should always be consolidated into one single card.
Make every day spend on card:
Make it a habit to charge all your spending and purchases on the card, especially daily spending such as in supermarkets, gas stations, cinemas, etc. One can earn more than one can think of by purchasing intelligently.
Pay your utility bills through your card:
By simply paying your electricity bills, insurance premium and phone bills through your card can earn you valuable points. All you know these bills, which are always seen as a liability, may earn you a trip to Goa!
However, while doing all this, you must not forget going for a program as per your requirements. For instance, if you are a frequent traveller, make sure your credit card program is linked to a frequent flyer program; if you are a regular shopper, make sure you keep converting the points to vouchers of your favourite department stores and so on. The importance is to set a discipline of converting the points on hand on a regular basis.
