Low Interest vs. Rewards Cards: Which Suits Your Needs?
Choosing the right credit card can significantly impact your financial health and spending habits. Among the various types of credit cards available, low interest and rewards cards are two popular options. Understanding their features, benefits, and potential drawbacks is essential to determine which suits your needs best.
Low Interest Credit Cards
Low interest credit cards are designed to minimise the cost of borrowing by offering reduced interest rates on outstanding balances. They are particularly beneficial for individuals who tend to carry a balance from month to month.
Advantages of Low Interest Cards:
- Cost Savings: With interest rates starting from around 13% per annum, low interest cards can help reduce the amount of interest paid on outstanding balances. This is especially advantageous for those who struggle to pay off their credit card in full each month.
- Balance Transfers: Many low interest cards offer attractive balance transfer options, allowing you to move existing debt to a card with a lower interest rate. This can provide breathing space to pay down debt without accruing high interest charges.
- Lower Financial Stress: By reducing the interest burden, low interest cards can alleviate financial stress and make it easier to manage monthly payments.
Disadvantages of Low Interest Cards:
- Higher Fees: Some low interest cards may come with higher annual fees, which can offset the savings on interest if not managed carefully.
- Limited Rewards: These cards typically do not offer rewards programmes, meaning you won’t earn points or cashback on your spending.
Rewards Credit Cards
Rewards credit cards offer incentives such as points, cashback, or travel benefits for every dollar spent. They are ideal for individuals who pay off their balance in full each month and want to earn rewards on their purchases.
Advantages of Rewards Cards:
- Earning Potential: Rewards cards can provide significant value through points, cashback, or travel perks. For frequent spenders, these rewards can add up quickly, offering opportunities for free flights, hotel stays, or cash rebates.
- Flexibility: Many rewards cards offer flexibility in how points can be redeemed, whether for travel, merchandise, or statement credits. This allows cardholders to tailor rewards to their preferences.
- Additional Benefits: Rewards cards often come with added perks such as travel insurance, purchase protection, and extended warranties, enhancing their overall value.
Disadvantages of Rewards Cards:
- High Interest Rates: Rewards cards generally have higher interest rates, often exceeding 20% per annum. This can negate the benefits of any rewards earned if the balance is not paid in full each month.
- Annual Fees: Many rewards cards come with high annual fees, which can diminish the net value of the rewards unless the cardholder spends enough to offset these costs.
- Complexity: Understanding the value of rewards points and navigating the terms of rewards programmes can be complex, requiring careful consideration to maximise benefits.
Deciding between a low interest and a rewards credit card depends on your financial habits and goals. If you frequently carry a balance, a low interest card may be more suitable, as it can help minimise interest costs and provide financial relief. On the other hand, if you pay off your balance in full each month and want to earn rewards on your spending, a rewards card could offer greater value.
It’s important to assess your spending patterns, financial goals, and ability to manage debt before making a decision. Tools like Sorted’s credit card comparison can help you evaluate the best options based on your specific needs and circumstances. Ultimately, the right card should align with your financial strategy and support your overall financial well-being.