Credit Card Rewards Programs Don't Always Result in Savings

Francine L. Huff
LoanBiz Columnist

Article Rating , 4 out of 5 based on 1 votes

Credit card rewards programs are popular with people who want to earn something back after making purchases. In fact, about 85% of U.S. households have signed up for a rewards program, according to a Consumer Reports study. But because of complex rules and restrictions, it may not be worth it to sign up for some of those plans.

Certain Limitations

One of the problems with rewards programs is that there are limits to how customers can use the points that they earn. Some credit card companies require points to be used only at certain retailers, airlines, or hotel chains. Other cards may have an expiration date for when points can be used.

"Carrying the right cards and ignoring the rest can save you a little money on your purchases, but consumers must choose programs that complement their spending habits," according to Amanda Walker, senior project editor at Consumer Reports.

Credit Card Interest Rates

With some credit card rewards programs, customers will pay a higher interest rate than on cards that don't offer rewards. Credit card interest can be as much as 19.9% for some rewards programs, according to Consumer Reports. If some cases, high interest rates mean card holders will realize little real savings with a rewards card. Annual fees can also cut into the savings.

Cashing in on Rewards

People need to compare offers from credit card companies offering rewards programs. Here are some things to look at before signing up:
  1. Does the credit card offer cash back for points? If so, this may be a good deal since cardholders may earn more for their points than if they redeemed them for merchandise.
  2. People who plan to carry over a balance each month may end up paying higher credit card interest with a rewards card.
  3. Credit card holders should try to cash in airline miles as soon as possible since more flights are being cut and airline rules may change.
  4. Does the rewards program offer something the credit card holder wants? If not, they may want to find a non-rewards card.
Shoppers should avoid overspending on credit cards just to earn points. In general, the value of merchandise offered through rewards programs is nowhere near the actual dollar amount of the purchases needed to earn it.


About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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