Credit Card: Credit card holders often make these 5 mistakes, which is why they don't get the full benefit of reward points..

Credit card usage has increased rapidly in the last few years. Now, not only do people in urban areas use credit cards, but people in rural areas have also started using them. However, even today, you'll find many people saying that having a credit card means falling into a debt trap. The question is, how true is this?

No doubt having a credit card means taking a small loan from the bank. You can shop up to your card's limit. You just have to pay the bill by the due date, and you'll get all the benefits. You'll receive reward points on every purchase, which will benefit you. However, most people misuse reward points and then blame the credit card itself. Let's look at the 5 common mistakes people make regarding reward points when using credit cards.

1. Not using the right card at the right place

This is a mistake that most people make unknowingly and continue to make. Different cards offer varying reward points for different types of purchases. For example, some cards might offer up to 10 times the reward points for shopping on a specific day of the week or at a particular outlet, but people are often unaware of this or forget, which prevents them from earning reward points effectively. Remember, have different credit cards for groceries, dining, flights, clothing, fuel, etc., so you can maximize your reward points.

Let's understand this with an example. Suppose you booked a flight and didn't use the right card. Instead of getting 20 points for every 100 rupees spent, you only received 2 reward points. Now, if a flight costs 10,000 rupees, you could have received 2000 reward points on it, but you only received 200.

2. Reward Points Expiring
Many credit card users get a card because it's free or because they see a discount on online shopping or during a sale. They receive some reward points every time they use the credit card, but they don't pay attention, and sometimes some reward points expire.

Let's understand this with an example. Suppose you have 10,000 reward points in your account, of which 2000 points might expire in a few days. In this case, it's important that you redeem them, you won't be able to take advantage of them. Typically, one reward point is worth 0.25 rupees. This means your 2000 reward points were worth approximately 500 rupees, which have now expired. However, if you had used these reward points more effectively, you could have benefited even more, such as by getting vouchers or using them for online shopping.

3. The Cashback Trap
Many people opt for cashback instead of using their reward points. They think, "Why bother with vouchers or shopping?" Cashback seems like the most straightforward option. Also, cashback shows you that some money has been returned, which gives a little satisfaction. However, if you had used your reward points to get vouchers to buy products or for shopping instead of converting them into cashback, you would have benefited more.

For example, if you have 2000 reward points and you convert them into cashback, you will get approximately 500 rupees at the rate of 0.25 rupees per point. Not only that, but the bank will also charge you a processing fee. However, if you had taken a voucher from a store, those same points could have given you a benefit of up to 700-800 rupees. 

4. Lack of knowledge about free flight and hotel bookings
You've probably heard some people say that they booked a flight or a hotel for free using reward points. While it may sound strange, it's true. The best use of a credit card is for flight and hotel bookings. You earn a lot of reward points, and you get a significant benefit when you redeem them.

For example, let's say you have 10,000 reward points. Typically, redeeming them for cashback would give you a benefit of up to ₹2500, and redeeming them for vouchers would give you a benefit of ₹3000-4000. However, if you use them for flight or hotel bookings, you could get a benefit of up to ₹5000-6000.

Now, the question is, how is such a large benefit possible? The fact is, flights and hotel rooms are products or services that expire quickly. If a flight takes off with empty seats, those empty seats cannot be filled again. Therefore, these empty seats are sometimes offered at a very low price in exchange for reward points. Similarly, if a night passes, the hotel cannot recover the revenue from an empty room the next day.

5. Unable to recover the annual fee
Sometimes, people get credit cards with annual fees. When they get these cards, they are told about many benefits, but at the end of the year, they realize that they haven't been able to recover the money spent on the card. If you also have such a card, cancel it immediately.

For example, if an agent sells you a credit card promising that you can book airline tickets at half price using the reward points, you would naturally be very happy. But the question is whether you will actually travel by air or not. If you travel very little or not at all, then no matter how many reward points you have, you won't get your money's worth. So, only get a card that actually benefits you.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.