Are you using your credit card wisely?

So you’ve gone on a plastic splurge and shopped like there’s no tomorrow. What next? Well, it’s high time you redeem yourself. We’re talking about redemption of reward points earned on credit card spends. Let’s take a look at how this works.

Most credit card companies offer reward programmes to promote card usage among customers. Each time a card-holder uses his/her credit card, he/she earns a certain number of points. After accumulating a minimum number of reward points, the customer can redeem them at participating merchant establishments for a variety of rewards/ gifts, as detailed in the rewards programme catalogue.

Knowing how your spending translates into reward points is one thing, but what is also important is how you redeem those points to get the best out of the choices available. Recently, rewards have started to become more significant as card providers have widened the universe of redeemable gifts to include not only merchandise, apparel, dining, entertainment, gift vouchers, discount coupons and magazine subscriptions, but also financial services, fee waivers, credit card upgrades, air miles and so on.

The value of the gift depends on the reward points that you have accumulated so far. You can book your gift online or over the phone, or fill out a redemption form and submit it at the bank branch. The gift will be delivered to your mailing address within 15-20 days of placing the order.

But is the chase for rewards really worth the effort? Often, the actual gift may not be as attractive as it is made out to be in the glossy rewards catalogue. Or the actual cost may be lower than the number of points that you are being asked to shell out. For instance, you may have to sacrifice 5,000 reward points for a DVD player worth Rs 4,500. So, you should do your homework well in advance and find out the actual worth of the gift you are ordering, before redeeming your points.

Since the monetary value of each reward point is usually less than Re 1, the number of points you will be required to sacrifice for a particular item will be more than the actual price of the item. For example, you may be required to shell out 750 points for an item worth Rs 500. Here, it is better to go in for a gift voucher rather than any specific item, as it will give you more value for money.

You should also be wary when you are asked to shell out extra money, apart from reward points, for purchasing certain items like consumer durables. For example, if you want to order an air-conditioner from the rewards programme catalogue, you may have to pay an additional Rs 10,000 apart from contributing say, 6,500 points.

In such cases, it’s better to find out the actual cost of the AC, and then compare it with the monetary value of your points (plus the extra cash you have to shell out), to figure out whether it’s actually worth it or not. Perhaps, you may find that it would be cheaper to buy an AC, without wasting your reward points!

Moreover, before ordering your gift, you should check with your credit card provider whether any delivery charges will be levied. While some banks like HDFC charge Rs 25 for handling of goods and services, others like Citibank, HSBC, Standard Chartered and ICICI Bank deliver the goods free of cost.

In the case of certain credit cards, the choice of gift is not limited to the items listed in catalogue. Instead, you can go in for instant redemption of points at select retail outlets, without having to wait for delivery of the merchandise ordered. For example, Citibank credit cards give you the option of instant redemption through the EDC (Electronic Draft Capture) machines at Shoppers’ Stop, Westside, Landmark and Satya Paul.

Some card providers even let you convert your points to frequent flyer air miles. For example, reward points earned on HSBC cards can be converted to Jet Privilege Miles, which enable you to fly on Jet Airways, KLM - Royal Dutch, Northwest and British Airways.

However, you should remember that you won’t be able to redeem your points if the card is delinquent, or your account has been closed for credit/performance reasons, or you have exceeded the credit limit, or your card is temporarily blocked due to fraud/loss. Moreover, the points cannot be exchanged for cash or credit, or used to obtain cash advances, or used against payment for any charges incurred on your card.

Choosing the right gift and redeeming your reward points is easy enough if you keep all these things in mind. But don’t get carried away by the goodies on offer. Read the fine print and do your math before placing the order. So go ahead, gift-wrap your dreams and shop all you want!