Rewards credit card mistakes Australians make (and what to do instead)

The most expensive rewards card mistake is carrying a balance: at an illustrative 20.99% purchase rate, interest on a $3,000 balance for one year is about $630, more than most households earn in points in a year. The next most common are paying a high annual fee for perks you do not use, valuing points at their best-case value, missing the end of a balance transfer, letting points expire, using the card for cash-like transactions, and applying for several cards in a short time. Each has a simple fix, and most of them come down to treating the card as a payment tool you clear every month rather than as credit.

This is the pillar guide for pitfalls, protections and official sources. Figures are illustrative. General information, not financial advice.

Mistake 1: carrying a balance on a rewards card

Rewards cards usually have higher purchase rates than low-rate cards. Interest also tends to remove interest-free days on new purchases, so interest builds faster than the balance suggests.

Fix: if you paid interest in the last year, move to a low-rate card and set a fixed payoff plan with the credit card payoff calculator. Come back to rewards only after the balance is cleared. See the cashback vs points vs low-rate example.

Mistake 2: paying for perks you do not use

Lounge passes, travel credits and complimentary insurance are worth only what you would otherwise have paid. A $450 premium card justified by "two lounge passes and travel insurance" is a poor deal if you fly once a year and the insurance does not fit your trip.

Fix: value each perk at its real replacement cost and at the number of times you will use it, as in annual fee versus rewards value.

Mistake 3: valuing points at the best possible redemption

A business class redemption can show a headline value of several cents per point, but if you would otherwise have flown economy, the real saving is much smaller.

Fix: use the value of the redemption you would realistically make; see valuing frequent flyer points.

Mistake 4: forgetting when a balance transfer ends

Whatever remains at the end of the promotional period is charged the revert rate. Spending on a balance transfer card can also lose interest-free days on purchases.

Fix: divide the balance plus fee by the number of months and pay at least that much. Do not spend on the card. See the balance transfer example.

Mistake 5: letting points expire or closing the card first

Points can expire after a period of inactivity under the program's terms, and are usually forfeited when the card is closed.

Fix: check the expiry rules, redeem or transfer before closing, and see points expiry and cancelling a card.

Mistake 6: cash and cash-like transactions

ATM withdrawals, transfers, gift card and foreign currency purchases can be treated as cash advances with fees and interest from day one, and they earn no points.

Fix: use a debit card for cash, and block cash advances in your card app if you can. See cash advance costs.

Mistake 7: applying for several cards close together

Each application normally records an enquiry, and each approved card adds a limit that lenders assess as if fully drawn. That can reduce your home loan borrowing capacity.

Fix: apply for one card at a time, keep limits modest, and close cards you no longer use. See credit cards and your credit report and how card limits are assessed.

Mistake 8: overlooking overseas fees

Foreign transaction fees of a few per cent on overseas or overseas-processed purchases outweigh typical point values.

Fix: check the Key Facts Sheet and use a card without the fee for overseas spending. See foreign transaction fees.

Mistake 9: ignoring fraud and disputes

Waiting weeks to query an unknown or disputed transaction can make a chargeback harder, because card scheme rules have time limits.

Fix: check transactions weekly in your app and report problems straight away. See fraud, chargebacks and the ePayments Code.

Mistake 10: mixing BNPL and credit cards without a budget

Using buy now pay later on top of a credit card can spread repayments across several dates and providers. Since 10 June 2025 BNPL is regulated credit, but late fees and multiple accounts still add up.

Fix: keep one list of every card and BNPL repayment date. See BNPL compared with credit cards.

Your rights if something goes wrong

Australian law gives cardholders specific protections: no unsolicited credit limit increase invitations, online limit reduction and cancellation, payments applied to the highest-rate debt first, no over-limit fees without consent, a Minimum Repayment Warning on statements, and a free complaint path to the Australian Financial Complaints Authority. See credit limits, reducing and cancelling and complaints, AFCA and official sources.

Frequently asked questions

Is it ever smart to keep a balance on a rewards card?

Rarely. Only a short-term balance at a 0% promotional rate with a firm payoff plan comes close, and even then purchases on the same card may attract interest.

I already have card debt and points. What should I do first?

Stop new spending on the card, set a fixed payment that clears the debt in a set time, and redeem points for statement credit if that helps reduce the balance. If repayments are hard, call your issuer about hardship and the National Debt Helpline on 1800 007 007.

Is closing an old card bad for my credit score?

Closing a card removes a limit, which can help borrowing capacity. The closed account stays on your report for a period. Lenders look at the overall picture, not one factor.

Should I trust "best card" lists?

Treat them as a starting point. Rankings depend on assumptions about spending and point values that may not match yours. Compare Key Facts Sheets with your own numbers using the checklist.

Sources and where to check

• ASIC Moneysmart — credit cards and getting out of card debt
• Australian Financial Complaints Authority — free complaints, 1800 931 678
• National Debt Helpline — free financial counselling, 1800 007 007
• Office of the Australian Information Commissioner — credit reporting rights