The Truth About Credit Card Rewards
We all see those ads and hear people talking about their amazing credit card rewards – fancy trips, free flights, and cool stuff. But have you ever stopped to think about how they actually get all those perks? It turns out, it might not be as simple as it seems, and for most of us, it might not even be worth it.
The Reality Behind the Rewards
Many people show off their free trips or luxury buys thanks to credit card rewards. They might tell you they got a 10-day trip to Europe for free. But what they don't usually mention is the massive amount of spending they did on their credit card to earn those rewards. Think millions, maybe even billions, spent over time.
Often, the people who seem to get the most out of rewards are those running big businesses. They might use their credit card for all their business expenses – things like rent, supplies, or salaries. Because their business turnover is so high, they naturally rack up a lot of reward points without changing their spending habits much.
For the Average Person, It's Different
Now, let's look at most of us. If you're earning a regular salary in India, especially outside the big cities, your monthly income might be around ₹30,000 to ₹40,000. Even in a major city, a good salary might be around ₹1 lakh. How much of that can you realistically spend on a credit card each month? Maybe ₹30,000 to ₹40,000 at most.
Credit cards usually offer 1% or 2% in rewards. So, if you spend ₹40,000 a month, you might get back ₹400 to ₹800 in rewards. That adds up to about ₹4,800 to ₹9,600 a year. That's not exactly life-changing money.
The Hidden Costs of Rewards
The real problem comes when the lure of these small rewards makes you spend more than you normally would. If, in your chase for rewards, you end up spending an extra ₹10,000 or ₹15,000 over the year that you wouldn't have otherwise spent, those rewards are gone. You've actually spent more to get them.
And if you lose control and start spending on things you can't afford, the credit card interest can be brutal. We're talking about interest rates as high as 50% per year. That completely wipes out any rewards you might have earned and puts you in a worse financial position.
Key Takeaways
- Business vs. Personal Spending: High rewards are often earned by businesses with large turnovers, not typical salaried individuals.
- Small Rewards, Big Temptation: The small amount of rewards earned by average spenders can tempt them to overspend.
- Interest Costs: Credit card interest can easily cancel out rewards and lead to debt.
When a Credit Card Might Make Sense
There are some good reasons why someone might want a credit card, even if they don't spend a lot. Maybe you really like the idea of using airport lounges, or perhaps you prefer not to expose your main savings account by using a debit card everywhere. Keeping your savings separate for safety is also a point.
In these cases, having one credit card might be sensible. But for most middle-class individuals earning a regular salary, signing up for three, four, five, or even six credit cards just to chase rewards doesn't really make much sense. It often leads to more complexity and potential financial trouble than it's worth.
