Should you use a rewards card with a mortgage offset account?
Using a rewards credit card in conjunction with a mortgage offset account can be a smart financial strategy, but it depends on your ability to manage credit responsibly and your financial goals. Here are some considerations to help you decide whether to use a rewards card with a mortgage offset account.
Pros of Using a Rewards Card with a Mortgage Offset Account:
- Earn Rewards: Rewards credit cards allow you to earn points, cashback, or other perks for your everyday spending. By using one for your expenses, you can accumulate rewards over time.
- Maintain Liquidity: Since your mortgage offset account is linked to your mortgage, it helps reduce the interest you pay on your home loan while keeping your savings accessible. Combining this with a rewards credit card allows you to earn rewards while maintaining liquidity.
- Double Benefit: You can effectively enjoy two financial benefits simultaneously: reducing mortgage interest through the offset account and earning rewards on your credit card spending.
Cons and Considerations:
- Responsible Credit Usage: To make this strategy work, you must use your rewards credit card responsibly, paying off the balance in full each month to avoid interest charges. If you carry a balance and incur high-interest charges on your credit card, it can negate the benefits of the mortgage offset.
- Risk of Overspending: There’s a risk that having a rewards credit card may tempt you to overspend, leading to debt accumulation if not managed carefully. Ensure that you stick to a budget and only make necessary purchases.
- Credit Score Impact: Frequent credit card usage, especially if you carry a balance or max out your credit limit, can impact your credit score. This can affect your ability to secure favorable terms on future loans, including mortgage refinancing.
- Annual Fees: Some rewards credit cards come with annual fees. You’ll need to weigh the cost of these fees against the value of the rewards you earn.
In summary, using a rewards credit card with a mortgage offset account can be beneficial if you are financially disciplined and use the credit card wisely, paying off the balance in full each month. This way, you can earn rewards without accumulating credit card debt while also reducing the interest you pay on your mortgage through the offset account.
Before implementing this strategy, carefully assess your financial situation and habits to ensure it aligns with your goals. If you have concerns about managing credit or overspending, it may be better to prioritize financial discipline and only use the mortgage offset account without a rewards credit card.