The reality of credit card rewards programs: are they worth it?

From frequent flyer programs to a wide range of rewards cards, these loyalty schemes promise freebies. But if you’re chasing perks and missing the fine print, it could be costing you more than it’s worth. We’ve broken it down so you can decide if rewards cards are the right fit for you.

You’ve probably seen the ads: earn Qantas Points on your grocery shop, score a free flight upgrade, or redeem your everyday purchases for a digital gift card. Sounds enticing, right? But here’s the real question, do rewards cards actually reward you, or are you just funding someone else’s holiday?

Let’s get into the facts and answer the question, ‘What is the real value of rewards credit cards?’

What are credit card rewards points programs?

Credit card reward schemes are loyalty programs offered by your credit card company to encourage you to spend. You earn points on eligible transactions, such as one point for every dollar spent, which can be redeemed for perks like:

• frequent flyer points
• cashback credit cards
• retail gift cards
• travel rewards cards
• statement credits.

Sounds pretty good in theory. But like most things in life (and banking), there’s a catch.

How do reward credit cards actually work?

The idea is simple: spend more, earn more rewards points. But what they don’t highlight in bold font is that:

Points values vary: not all points are created equal. One Qantas Point may get you a lot… or very little, depending on flight availability and redemption options.

Minimum spend requirements: many cards dangle big bonus offers upfront, but you may need to spend thousands within the first 2-3 months to unlock them.

Rewards cards often come with higher interest rates and annual fees: some cards charge $400+ a year just for the privilege of collecting points. Ouch.

Redemption restrictions: Your dream redemption may be subject to blackout dates, limited availability, or a complex tiered points structure.

“If you’re not paying off your balance in full every month, the interest could totally wipe out any benefit you’re gaining in rewards.”

Tammy Barton, Founder and Director of MyBudget

Are you a good candidate for a rewards card?

Rewards cards can work in your favour, if you:

• have a budget and track your everyday spending
• always pay your credit card off in full before the due date
• are spending money you would have spent anyway (groceries, petrol, bills, not spontaneous splurges)
• understand your card’s points structure and redemption method.

Basically, rewards cards work best for disciplined spenders with good credit scores and great spending habits.

If that’s not you? The better reward might be peace of mind, not a points balance.

Should I choose American Express, Visa, or Mastercard?

You’ve got options. Lots of them, so let’s look at the main ones:

• American Express Membership Rewards cards often offer generous point earn rates, but not all retailers accept them, and annual fees can be steep
• Visa and Mastercard cards tend to have wider acceptance and more low-fee or no-fee options, but may have lower point-earning potential.

It all comes down to how you spend, where you shop, and what perks you value. Be clear on your personal preference before applying.

What is the real cost of chasing rewards points?

Let’s talk dollars and sense. If you:

• spend $20,000 a year on your card and earn 1 point per $1 spent
• redeem your 20,000 points for a $100 gift card.

That’s a 0.5% return on your spending. And if you paid a $250 annual card fee? You’re in the red.

To break even at that rate, you’d need to spend around $50,000 just to earn enough points to match the annual fee in gift card value.

And this doesn’t factor in interest. Rewards cards can have interest rates of 19–24%. If you carry a balance, that’s where your money’s really going.

If you’re hoping to use your rewards credit card points for travel, it might not stretch far. That $20,000 spend could get you just enough for a one-way domestic flight, often worth less than the annual card fee. Dreaming of an overseas holiday? Rewards flights or upgrades are usually limited to high-status frequent flyers. So the real question is: are the points you’re earning actually worth what you’re spending to get them?

“You may have to spend tens of thousands to get enough points for a rewards flight, and even then, there may be better ways to fund your next holiday.”

Tammy Barton, Founder and Director of MyBudget

How to use a rewards credit card wisely

If you’re going to commit to a rewards card, remember these tips:

• stick to a spending plan and only use your card for everyday expenses
• always pay off your full balance before the statement period ends
• be aware of interest-free days and your card’s terms
• track your rewards and make sure your redemption rates are worth the effort.

Need help tackling your existing credit card debt first? Start with our free ebook: 6 steps to eliminate credit card debt.

So, are credit card rewards programs really worth it?

If you’re using rewards cards strategically by paying off your balance in full each month and earning points on items you’d purchase anyway. Yes. But if you’re lured into spending more than you normally would just to earn points, those card perks might end up costing you more in the long run.

Chasing sign-up bonuses and jumping from card to card might seem savvy, but studies show using credit cards less could save you up to 23%.

What’s next for credit card rewards programs?

Rewards programs are changing, and not always for the better. While banks keep pumping up the perks, Aussies are checking the fine print. With more exclusions and higher points requirements for less value, many are switching to cashback programs or ditching rewards altogether.

Forget points: MyBudget gives you real rewards

With over 25 years’ experience, and 90% of our clients paying off their unsecured debts in around 3 years, MyBudget helps you take control of your finances, ditch the debt cycle, and save with confidence.

When you’re with MyBudget, you don’t need to rely on credit cards or rewards points to get ahead. We’ll help you build real savings, so you can buy the things you want without chasing bonuses or racking up interest. The kind of financial rewards that last.

Enquire online or call us today on 1300 300 922 to get started.