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Glittering prizes spring the debt trap
Some credit card users will benefit from the incentives on offer; others will be dragged deeper into debt, writes LEIGH ROBERTS
FREE air tickets, a case of fine red wine, a trip to Vic Falls, cash payouts: these are some of the rewards banks are offering to entice customers to spend more on their credit cards. Banks use the programmes to keep customers and to promote the use of credit cards, as opposed to cash or cheques. However, Standard Bank has taken its programme one step further and uses it as a relationship-building tool. It rewards customers not only for credit card usage but also for taking out home loans and car financing and using other products. First National Bank's programme is free, and all cardholders are automatically members. The other banks offer optional membership and charge annual fees. The prizes up for grabs also vary: First National Bank awards cash only; Nedbank's prizes are largely free air tickets through the SAA Voyager programme and Standard Bank offers gifts such as CDs, air tickets and overseas trips. Points are generally allocated as follows: one point for every R5 you spend (but Standard Bank awards one point for every R10 spent on your card and varying numbers of points for making use of its other products.)
The programmes do hold benefits for customers, but there are some dangers. If you're in the bad habit of using your card to finance your debt the crucial factor is getting the lowest interest rate, not a free trip to Bali. There's little point in paying R57 a year if you're likely to spend less than R2 400 on your card each month, or if you're not a frequent flyer. Because under Nedbank's scheme, you need 17 500 points for a return flight from Johannesburg to Cape Town, but your points are valid for three years only. So at R5 a point you need to spend R87 500 within three years, and you would have paid R171 (R57 X 3) in membership fees. If you're a frequent flyer it's easier to accumulate points: the actual distance travelled on SAA is converted into Voyager miles. Standard Bank's programme is more difficult to assess because it awards points for your credit card, home loan, car loan and insurance premium. Even if your monthly card bill is small you earn points on products you may already use anyway. But if all you have is a Standard Bank credit card and you spend R1 000 on it each month it will take 35 months and cost R105 in membership fees before you have enough points to claim a case of wine. But, says the bank, its annual membership fee covers other useful benefits: insurance on goods bought by card, a registration and protection service for all cards that are lost or stolen, and for gold card holders, a confidential asset registration service. So how can cardholders reap the rewards and side-step the pitfalls?
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