Freebies can cost more than you think

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For many Australians balancing a range of financial commitments, the idea of getting something for nothing is a very appealing one. But for those of us who have been tempted by credit card rewards programs offering free flights, accommodation, gift vouchers and even household appliances, it appears the benefits are not all they're cracked up to be.

RateCity research shows that over half of all credit card holders in the country – around seven million Australians – do not receive any value from their credit card rewards programs. This is because the annual fees on these cards can quickly and easily erase the value of any reward points you may try to redeem.

For instance, spending $12,000 a year (or $1000 a month) on a standard rewards card will typically earn you annual rewards points with a redeemable retail value of $101, which you may choose to cash in for items such as an iPod Shuffle or an electric kettle. The downside is you will also be faced with an average annual fee of $134, which effectively means you could be $33 behind by the end of the year at this level of card spending.

Similarly, if you are a traveller who has signed up to a rewards program in the hope of scoring a free flight or two, RateCity's calculations show the average amount you would need to spend for a Sydney-Melbourne return flight is $19,500. Weigh this up against the cost of a return economy fare from Sydney to Melbourne, which can be purchased for as little as $140 and you gain some perspective on just what it takes to earn that flight.

According to RateCity CEO Damian Smith, a cardholder would need to spend $60,000 a year to gain significant benefit from the average rewards credit card. RateCity's analysis shows this level of spending would earn nearly $500 worth of rewards points annually, which may be redeemed for reward merchandise such as mountain bikes and digital cameras. When you deduct the average annual card fee of $134, this still leaves cardholders over $360 ahead at this level of card spending, according to Smith.

However, credit card spending of $60,000 a year is uncommon for most Australians, and is well above the average annual card spend of $17,000. Smith says that often the cardholder is better off purchasing any reward-type items directly and pocketing the savings made by holding a low rate credit card.

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