Here's why you shouldn't get lured by credit card reward points

We've all seen what happens when credit card spends bloat, as a credit card is for day-to-day ad-hoc expenses and to ride out financial exigencies. They cost upwards of 48% interest per annum if you add the service tax component of repayment. So it's a risky thing to walk into the trap of credit card savings points and spend beyond our means to get the lucrative deal on the card spend.

Rewards cards are great for people with impeccable money management skills. If you can plan your expenditure well and keep it in check, these rewards could be highly beneficial. The credit card spend if paid off within same month is ideal, but generally, you don't put an "end date" on the debt and you could perpetually be paying off the loan. For the average person, it makes sense to understand the pitfalls and do your homework to get the card best suited for your spending habits as the danger with credit cards is that you can always charge more at any time up to your credit limit, keeping you stuck in debt.

Credit card rewards are so popular because you are actually getting rewarded for spending. In an ideal world, that would be incredible. These cards offer a promise of free flights, free hotel stays, vouchers, movie tickets, free fuel and a multitude of benefits. Too good to be true? Exactly. A savvy shopper could put these cards to best use. But any average person with little time for planning his expenditure would get lost in the myriad T&C's and end up spending more due to the rate of interest which would offset any rewards accrued from the card.

Some of the common traps are

Buying for reward - As silly as it might sound, some people rack up expenses on their cards just to earn reward points. What it does is put you in enormous credit card debt if you don't plan carefully. And if you plan to carry forward your balance or pay just the minimum every month, this is a wrong road to take.

Reward threshold - Most cards expect you to spend a minimum amount for the points to start accruing and become enticing. The cards work on the principle of benefitting customers who spend more.

Reward redemption time frame - Most rewards expire within a certain time frame. If you are someone who has never read the fine print, which accompanied your shiny new card, chances are, you are in for a big surprise. Most of these rewards are to rope in new customers and withdrawn subsequently.

The wrong rewards card - Picture this: Your credit card sales guy just sold you a card which gives you free travel miles. You can buy those free flight tickets by accumulating these rewards. But if you are someone who is never going to travel anywhere and use those travel miles, there is no potential use of the points.

Difficult to interpret reward structures - Many cards offer rewards for a certain category of spends. For example, utility purchases could accrue higher rewards while your lifestyle shopping expenditure could earn you fewer rewards.

Point conversion - Not every point equals a rupee in value. It could be as less as 10 paise per point.

Limits on redemption - Most cards put a limit on redemption of reward points. You could use only a fraction of your reward points in a single transaction or during a particular time frame.

The writer is founder & CEO, LoanAdda.com