Are you thinking of getting an Air Miles credit card? The thought of free flights just for buying stuff you normally buy is superficially attractive.
I remember when air miles were launched in the 1980s. The concept was very clever, fill up your petrol tank and fly six miles, not that you could find anyone to give you a six mile flight of course; you needed 9,000 air miles just to fly 200 real miles.
Air miles have now changed to Avios points; at least the implied promise of travel miles per pound spent is no longer there. It is now clearer that this is just an affinity scheme, where you cash in pints to buy mostly travel and holiday related purchases. It’s like Green Shield Stamps for the Twenty First Century.
How Do Air Miles Credit Cards Work?
When you use your card at a retailer who gives Air Miles/Avios points you earn miles/points. You can then spend these points on flights, train tickets and car hire.
Cons: If It sounds too good to be true, then it is too good to be true. The scheme is designed to encourage you to use certain retailers above other, lower cost retailers. You have to pay Shell prices for petrol and pay the extra 2p a litre to earn your points. Discounters do not participate in loyalty schemes of this kind.
Under the new Avios scheme you have to pay taxes and charges on flights and you can only use the points on certain (full-price) airlines.
Alternatives: Pay cash or use a cash-back credit card to actually get 1-2% cash-back to your account everywhere you use your card.
Is Cash Better?
If you only use cash you can never spend money you have not got and you avoid the risk of the credit card debt that so many of us have hanging over us. Debit cards can be used if you want to avoid carrying cash around, but it is harder to keep track of how much money is left if you use one all the time. Cash is king and moving to a cash economy is the best way to avoid any debt.
Any credit card seems to encourage people to spend money they don’t have. The very language used does this; banks send you a “statement” at the end of the month, never a bill. If they called it a bill there would be a larger psychological barrier to leaving it only partially paid and the bank would make less money.
Is a Cash Back Credit Card Better?
If you are using a credit card and paying off the bill each and every month then a cash-back card may be your best option. However, if having this card makes you more willing to buy stuff then it is not for you. You may get 1% cash-back as a reduction on your monthly bill, but most retailers now add on a credit card use charge that will eat into your cash-back.
If you just pay the minimum amount for one month out of the twelve then the interest you will pay in addition to retailers’ card charges mean that you would have been better off paying with cash.
Join the Cash Society
Forget the cashless society, virtual cash and similar terms. These all make it very easy to lose track of how much money you have. Governments want us all to move to these systems because the cash society makes it impossible for them to keep track of how much tax you owe.
Cash is your best option for staying out of debt. Debit cards have some merits and credit cards carry more risks than benefits for most people.
Air Miles credit cards are worse than ordinary ones because they tempt people to spend money only in the expensive affiliate retailers.