Don’t use the rewards as an excuse to spend money on things you don’t need. But the perks can be quite nice.
Cashback cards will pay a percentage of your monthly spend back to you. The American Express Platinum Everyday card offers 5% cashback for three months (up to a £2,000 spend). During this introductory period, for every £100 you spend, you'll get £5 back.
You then receive an ongoing rate of up to 1% so long as you spend more than £5,000 on the card over the year. Spend less and the rate drops to 0.5%.
The cashback from a card like this isn’t going to change your life. But it does give you back some money that you wouldn’t otherwise have had.
A good strategy is to use the card for your daily spending, and set up a Direct Debit to clear your balance in full every month. This way, you won't pay out to cover interest.
Points cards are a little more difficult to understand and to compare than cashback cards, because of the nature of the points themselves. You’ll earn a certain number of points whenever you spend on the card, though the amount varies depending on the points scheme.
We all have some idea of what a pound can buy you. But if we asked you what you could buy with 1,000 Nectar, Avios or Clubcard points, chances are you’d draw a blank.
They’re not the most transparent product. If you’re loyal to a particular supermarket they might be handy. You will build up points anyway by shopping, and you can then boost your collection using affiliated cards. For example, spending on a Tesco Clubcard credit card will boost your Clubcard balance.
Points can then be traded in for various items, days out or even flights. But it's not always obvious how much points are really worth. And the administrator of the point system may decide to slash the value at any time.
Some credit card providers offer freebies to entice new customers in. They might offer shopping vouchers, for example, or a lump of bonus points to add to your collection.
Offers come and go, and you may need to make a minimum spend on the card to qualify for the freebie. Pay off your balance in full every month and you won’t be charged interest. So you could receive some top freebies just for buying the things you would anyway on a different card.
Why you need to pay in full every month
If you don’t pay off your debt in full every month, interest will erode the benefits of your rewards. For instance, the American Express card mentioned above has an APR of 22.9%, which is pretty high.
If you are going to make a purchase on a card with the intention of paying it off over some time, these cards are not for you.
Try looking at 0% purchase cards instead. Or if you’re working your way through an existing balance, take a look at 0% balance transfer cards.