A credit card that pays you to spend sounds too good to be true, and for many people it quietly is — because the interest charged on a carried balance dwarfs any reward earned. Used with discipline, though, a cashback or rewards card is genuinely free money. The dividing line is whether you clear the balance in full every month.
How they work
Reward cards give you something back on your spending — a small percentage as cashback, or points towards travel, vouchers or air miles. The provider makes its money from fees charged to retailers and, crucially, from interest paid by customers who do not clear their balance. To win, you must never be one of those customers.
The one rule that matters
Pay the statement balance in full, every month, by direct debit. The interest rate on these cards is usually high, so carrying even a modest balance wipes out a year of rewards in a couple of months. If you cannot reliably clear it, a rewards card is not for you — clear your debts first.
Earning more, safely
- Put your normal, planned spending on the card — not extra spending chased for points.
- Use it for regular bills and the weekly shop, then pay it off.
- Watch for annual fees, and check the reward outweighs them.
The trap to avoid
The danger is letting rewards encourage spending you would not otherwise do. Earning 1 per cent back on something you did not need is still losing 99 per cent. Treat the card as a way to be paid for spending you were going to do anyway, set up the full-balance direct debit, and the rewards are a clean, painless bonus.