1. The High Cost of Carrying a Balance
The single biggest way rewards are wiped out is by not paying your bill in full. Indian credit cards charge steep interest rates, often ranging from 30% to over 48% annually, on any unpaid balance. If you carry even a small amount forward, the interest charges
can quickly dwarf the value of any points you've earned. For instance, on a remaining balance of ₹50,000, a monthly interest of 3% adds ₹1,500 to your bill—likely far more than the rewards gained from that spending. The fundamental rule of rewards is to always pay your entire balance on time. If you can't, the rewards game isn't for you.
2. Annual Fees That Negate Your Earnings
The most lucrative reward cards often come with significant annual fees, sometimes running into thousands of rupees. A card might offer airport lounge access or a high reward rate, but if its annual fee is ₹2,500, you need to earn more than that in rewards just to break even. Many premium cards waive this fee if you meet a high spending threshold, such as ₹3 lakh or more per year. Before signing up, do the maths. Calculate if your expected rewards from your typical spending habits will genuinely exceed the annual fee. If not, a no-fee or low-fee card might offer better net value.
3. The Psychological Trap of Overspending
Credit card companies are experts in consumer psychology. The promise of earning points activates the reward centres in your brain, making spending feel more gratifying and less like a financial loss. This phenomenon, known as the 'pain of paying' being reduced, often leads people to spend more than they would with cash—some studies suggest 12-18% more. You might find yourself justifying extra purchases just to hit a spending milestone or earn more points. This 'overspend effect' is a well-documented behaviour where the chase for a reward leads to a higher bill, ultimately benefiting the bank more than the consumer.
4. Devaluation and Expiry of Your Points
Your hard-earned points are not a stable asset; they are a currency that banks can devalue at any time. In recent years, many Indian banks have revised their reward programs, meaning you might suddenly need more points for the same flight or voucher. For example, a bank might change the redemption value, remove transfer partners, or cap the points you can earn on certain categories. Points can also come with an expiry date. The best strategy to counter this is 'earn and burn'—redeem your points regularly instead of hoarding them for years, as their value is more likely to decrease than increase over time.
5. Fees for Redemption and Foreign Transactions
Earning points is only half the battle; redeeming them can also come with costs. Many major banks in India charge a 'reward redemption fee' of around ₹99 plus GST every time you want to use your points for vouchers or products. While a small amount, it reduces the net value of your rewards, especially if you redeem small amounts frequently. Furthermore, if you use your card for international transactions, even online, you'll likely be hit with a foreign currency markup fee, typically around 3.5%. This fee can easily cancel out any rewards earned on that transaction.
6. Complex Rules and Excluded Categories
The fine print of reward programs is often where the real value gets diluted. Many cards in India place caps on the points you can earn in accelerated categories each month. For instance, you might get 5% cashback on utilities, but only up to ₹150. Beyond that, the earn rate drops significantly. Furthermore, common and significant expenses like fuel, insurance premiums, rent payments, and wallet loads are often excluded from reward programs or earn at a much lower rate. This means a large portion of your monthly spending might not be contributing to your reward goals at all, making the card less valuable than it first appeared.
