We are constantly bombarded with advertisements of credit cards offering us more than just a means of borrowing money. We can collect airmiles, retail points, vouchers and even cashback. Points mean prices and with all these incentives on offer it can be very difficult to make a choice. But the danger is, these added extras detract from the real reason for taking out a credit card.

Reward cards are designed to encourage us to spend and this can be very risky. The more we spend the more we have to pay back and the more interest we can accrue.

 “There are a variety of reward based credit card schemes and these include points schemes, air miles and cashbacks,” comments David Black, Principal Consultant Banking at Defaqto. “Some of them can be very difficult to compare and, certainly in the case of cashbacks, it’s worth reviewing what’s available on a regular basis, as the best offers often gain that position by virtue of a short-term introductory enhanced rate.”

If you are unlikely to repay the entire balance every month you should concentrate on the interest charged rather than the rewards offered.

Brian Capon Assistant Director British Banking Association agrees. He says consumers should not to be drawn in by what may initially appear to be attractive offers. There are far more important things to be taken in to consideration.

“When taking out a credit card the first thing to consider is how you are going to use it,” he says. “A credit card isn’t the best way of borrowing in the longer term. But if you do need it your main priority is the interest rate. What you should really look for is a low interest rate.”

Rewards and incentives should only be taken in to consideration if you are able to use your credit card as an alternative to cash and pay off the balance in full each month, without incurring interest.

“If this is possible then you can look at other features on offer,” says Brian Capon. “Some offer interest free credit. Look at this sort of thing before you look at the rewards and incentives. Consider how useful it is going to be. Will you actually use the airmiles or vouchers. The incentives may look very attractive but may not be worth while.”

But reward cards do have their uses. Different cards can be used for different types of spending, so take advantage of the offers available. For example it makes sense to use a supermarket affiliated card to collect points when you shop. These can then be redeemed against future grocery bills. Similarly is makes sense for motorists to do the same with petrol affiliated credit cards.
 
It pays to thoroughly research what is available. Don’t be dazzled by the bows and bells. Make sure the credit card, or cards you sign up for really work for you. And says Brian Capon: “Above all else don’t take on more than you can handle.”