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Reward points or cash back
While both the options have pros and cons, pick the one that suits your spending limits and habits.
It is difficult to ignore the convenience of a credit card. It is not only a safer option compared to cash trans actions, but also offers benefits in the form or rewards or cash-back options. However, picking up credit cards randomly can defeat the purpose of the benefits offered by them. Therefore, it is prudent to know the payback options and how you can make the most of them before you opt for one.
Cash back
In the case of a cash-back card, you get back a fixed percentage of the amount you have spent every time you swipe it. The amount varies for various banks and card issuers may notify you about the changes in their offers from time to time. For instance, the Citibank credit card gives 5% cash back on movie tickets, telephone and utility bills, and 0.5% for all other transactions.
Besides, most banks set a minimum transaction amount on their cards to qualify for the benefits and have a cap on the cash they return to the customer. For instance, the minimum transaction amount for the Standard Chartered Super Value Titanium card is `750, with a maximum cash back of `100 per transaction and `500 for a month.
The process of redeeming the cash reward also varies. Our bank lets you adjust the cash back amount against that due for the next month's bill. While for some banks you may have to call the customer care number to get your cash reward, others may pay it every month, or at a predetermined period. Some cash-back offers also come with a limited validity period.
Cash-back cards come with conditions. For instance, if you fail to pay your dues on time, the cash back you accumulate will not be credited to you. Therefore, like any other financial product, it is better to go through the fine print and know all the benefits of the card before you pick one.
Reward points
Like cash-back cards, you can accumulate reward points on card purchases. For every `100-150 you spend on your card, you get 1-5 points. For instance, the Standard Chartered Platinum Rewards Points card lets you earn five points for `150 spent. Each point earned can be worth between `0.25 and `1, depending on the bank and the product. Customers spend and accumulate reward points, which they can redeem for various products and vouchers through Net banking and phone banking. If you do not redeem your reward points in time, they might lapse.
How to pick the right card?
Both cash-back and reward point cards have their own advantages and limitations. The good part about cash back is that most banks automatically adjust it against the outstanding bill amount. However, rewards points have to be redeemed against products. As far as industry numbers go, only 35-40% of rewards points are being used. Most cash-back cards come for specific spending categories, such as dining and entertainment. If you spend across categories, generic reward point cards work well. However, your choice of cards should depend on how much you spend on it and for what.
So, irrespective of the card you choose, if you use it irresponsibly, you could end up in a debt trap. Choosing the right card is as important as using the card sparingly and only to buy things that you need.
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