Credit cards can be great for short-term business spending. You get to pay on credit and hold onto your cash for the interest-free period on the card. In some cases, this can be as long as 55 days, which is great for working capital management. If you can comfortably pay off the balance at the end of each month, the credit card may well be the best option for smaller day-to-day purchases.
However, choosing the right credit card can be tough. Some offer rewards, often at the price of higher fees, whereas others will appear “cheaper” but you won’t accrue points with your spending. Rewards effectively give you a percentage (%) discount on anything you buy with the card. However, you’ll need to carefully consider how much you are spending on the card and if/how you will use the points.
You may want to explore your no rewards, low-fee options if any of these apply to you:
1. You don’t spend much per month
We calculate that rewards become “worth it” at around $1,000 spend per month (assuming you are getting at least 1 frequent flyer point per dollar — more on this below). The $1,000 per month would generate around 12,000 points annually, worth conservatively about $180 dollars, which is higher than most annual fees (ignoring sign-up bonuses for now). If you’re spending less than the $1,000, you might not be recouping the annual fee you are paying on the card.
2. You won’t use your points for flying
Frequent Flyer points have the best redemption value. If you don’t fly enough to bother with Frequent Flyer points, it will be much harder to spend enough on the card to justify the higher annual fee of a rewards card.
3. You won’t actually redeem the points
Points are useless if they just sit in your account. Moreover, they will lose value over time as points inflation can be quite unpredictable and you’ll find that the major airlines regularly increase the number of points required to fly the same routes.
If you decide that rewards don’t suit you for any of the reasons above, it is worth having a look for a low-fee card with a long interest-free period (however, depending on your needs, a competitive balance transfer deal may be more appealing). There are plenty of tools already out there for comparing specific options, such as Infochoice or Finder.
Nicki is the Senior Working Capital Product Specialist at Valiant. Nicki has impressed hundreds of Australian SMEs, working closely with business owners to achieve successful outcomes for their business.