If you have followed my posts, you might have noticed I mentioned something about the cost of redemption.
I thought I should touch on in further detail. If you have missed it previously, it’s okay. I’ll state my example here again.
Scenario – A person went to buy something from a store using a credit card that gives cash rebates and was given the option to use his/her cash rebates that was accumulated to offset the purchases.
For easy calculation, let’s say the person made a $100 purchase and had a $10 cash rebates accumulated. And for every $1 spend, there is a 1% cash rebate given.
If this person do not take up the option to use his/her cash rebates to offset the purchases. For the $100 purchase, $1 cash rebate is earned, making the total cash rebate in the card to be $11 now.
If this person chooses to take up the option to use his/her cash rebates to offset the purchases. After offsetting, the remaining bill payable is $90. This $90 will then earn the 1% cash rebate, which would give the person a $0.90 cash rebate. The total cash rebate accumulated so far is $10.90.
Compared the person who chose not to take up versus the person who took up the option of using the cash rebates to offset the purchases, the one who chose NOT to take up the option to offset the purchases is slightly better off.
If the situation goes on for 10 blocks of such redemption, by using the offset purchase option, one would be worse off by $1. This is just an example to illustrate the point. The actual amount varies from card to card.
In my example, I used the case of using a cash rebate offset. This cost of redemption exists also for points offset or voucher redemption.
Is there a way to really do away with this cost of redemption?
Not really, especially if yours is a points card.
For cash rebates, we can still choose options like using the cash rebates to offset our credit card bills. This option allows us to utilise our cash rebates without being “penalised”. But it’s dependent on the card and the options given. There are some cards that gives rebates or points equivalent to rebates where the only way to spend the rebates is through purchases offset.
This post is really more for information and understanding. And hopefully, with such a knowledge, I have encouraged someone else to learn how to find another card that works better to our advantage and still fits our lifestyle.
