Questions you should ask yourself before choosing a credit card
- What is your Spending Pattern? Choose a card based on the category where you spend the most money.
- What is your Redemption Preference? If you prefer direct savings, choose a cashback card or a co-branded card with good discounts. If you want flexibility for travel, choose a card that earns transferable reward points.
How to choose a credit card?
Filter the available cards based on your spending pattern, and then select the best option based on your preferred redemption method.
Let's look at some specific scenarios to illustrate how to choose the right card.
- High Grocery Spends + Cashback Preference: For this use case, consider the HSBC Live+, which gives 10% cashback (up to ₹1,000/month) on grocery spends, including offline Kirana stores. Another option is the HDFC Swiggy card if you primarily use Swiggy Instamart.
- High Grocery Spends + Travel Redemption Preference: The first step remains the same: identify that your main category is groceries. However, since you want travel redemptions, you need a card that earns reward points. Be careful here—sometimes the rewards card for which you are eligible, could have a lower return rate than a cashback card in the same category. In those cases, it is often mathematically better to choose the cashback card.
How to Calculate the Return Rate of a Credit Card
Understanding the true return rate of a credit card is essential for making informed decisions. The calculation method varies depending on the card type.
1. Cashback and Discount Cards
For these cards, the calculation is simple: compare the cashback percentage or instant discount rate across cards that align with your typical spending habits.
2. Reward Point Cards
Calculating the return on reward cards is more complex. You should follow a two-step process:
- Assign a Point Value: Determine a conservative, average monetary value for a single point (e.g., 1 Reward Point = ₹0.50).
- Calculate the Return per ₹100: Determine how many points you earn for every ₹100 spent to derive your effective percentage of return.
3. Understanding Accelerated Rewards
Many premium cards offer "accelerated" (higher) reward rates when you purchase through specific bank-owned platforms. These portals often sell shopping vouchers for groceries, fashion, and dining that offer significantly higher yields.
Example: HDFC Regalia Gold
- Standard Spend: Usually, this card offers 4 Reward Points per ₹150 spent.
- Accelerated Spend: If you purchase a BigBasket voucher through the HDFC SmartBuy portal, you can earn 5x points.
- The Result: For that same ₹150 spend, you earn 20 points instead of 4, dramatically increasing your total return.
Confused by SmartBuy or other accelerator portals?
Visit our 'Travel on Points' section, where we break down these multipliers and show you how to maximize your rewards.
The "Net Effective Return" (Don't ignore the fee!)
A card might offer a high 4% return, but if it comes with a high annual fee, your ''actual'' profit could be lower than a free card.
To see if a fee-based card is worth it, subtract the annual fee from the total value of rewards you expect to earn in a year.
The Breakeven Calculation: Ask yourself, 'How much do I need to spend just to earn back the fee?' For example, if a card costs ₹3,000 and earns a 2% return, you must spend ₹1.5 Lakhs just to break even (return to ₹0 profit). Only spending ''above'' that amount generates real value.