I think rewards programs (e.g Qantas, Altitudes,Velocity) can be worthwhile if you understand them. The key points being:
- A rewards program should not have too much influence on your spending. These programs are designed to encourage you to ‘spend more’ by marketing offers to you and tempting you with ‘rewards’.
- If you are not good with managing your spending, you are best to avoid credit cards all together.
- Redeeming certain rewards can offer you a much higher ‘return on investment’.
- Credit card surcharges can offset the value of any points earned. Avoid them where possible.
- Some cards & programs are better than others.
The ideal situation for someone to take advantage of a rewards program is where you have your own business. This is because you can run all of your business and personal expenses through credit cards that generate reward points. I have a few clients that generate massive points balances each year by running all of their normal expenses through credit cards, giving them free overseas flights every year.
If you don’t have your own business, you can still take advantage of reward programs by running your regular expenses through certain credit cards. Although it will take you a lot longer to accumulate a significant balance and annual fees are more of a concern.
Which rewards offer the best redemption rate?
Something many people overlook is the ‘return on investment’ for different rewards. Unless you don’t fly at all, I would suggest using points for flights. Below you can see why:
1. Return domestic flight Brisbane to Sydney with Qantas. Points required = 24,000. Flight would normally cost $300 (average price). $300 / 24,000 = 1.25%. This means you are getting $1.25 on every 100 points you earn. This can be a higher % in peak seasons where the average flight prices are higher.
2. Business class upgrade Brisbane to Singapore/Hong Kong. One way. Points required = 40,000. Upgrade cost approx $1,500 (average price). $1,500 / 40,000 = 3.75%. This means you are getting $3.75 on every 100 points you earn.
3. Gift voucher/item purchase for $100. Points required = 20,000.
$100 / 40,000 = 0.50%. This means you are getting 50 cents for every 100 points you earn.
‘Cash back’ normally has a similar, if not lower redemption rate.
Travelling in economy class is not fun, so my preference is to target business class upgrades with my Frequent flyer program. Business class airfares are crazy expensive, but working the points programs makes this type of travel a possibility for me.
Hope this write up was of value! Please let me know if you have any questions.
Note: The above examples are based on Qantas Frequent flyers.