Guest Post: How to Maximize the Value of Your Credit Card Rewards

by hedy on July 3, 2012

How to Maximize the Value of Your Credit Card Rewards
Rewards are clearly a big part of a credit card’s appeal, especially since they’re now perhaps more lucrative than ever before. Not only is it possible to score an initial bonus worth hundreds of dollars in points, miles or cash back if you have excellent credit simply by signing up for the right card, but you also stand to get more bang for your buck on an ongoing basis. It’s just too bad that a lot of these rewards are going to waste.
While U.S. companies dispense roughly $48 billion worth of points and miles each year, according to a joint study from Colloquy and Swift Exchange, one-third of them go unused. That’s $16 billion down the drain that could go toward making ends meet or paying down existing credit card debt. It’s not like we don’t need the money, as we incurred more than $53 billion in credit card debt during 2011 and are expected to add another $50 billion this year, according to Card Hub’s latest projections.
Too Much CreditSo what’s to blame?
A combination of things most likely, including forgetfulness and disorganization. The extent to which these factors come into play largely depends on the individual, but one thing we can all strive to avoid is rewards devaluation.
Rewards devaluation is when a credit card company increases the number of points or miles you need to redeem in order to score certain goods or services, thereby making those you already have relatively less valuable. For example, if you have 15,000 airline miles and are in the midst of saving up for a 30,000-mile reward flight when the airline decides that it now costs 45,000 miles, you all of a sudden go from being half-way to your goal to only a third of the way there.
Luckily, there are a few steps you can take to minimize the risk of such disappointing value loss:

Opt for cash-based rewards: The value of each point or mile is up to your credit card company, but it obviously has no effect on how much actual money is worth. Therefore, if you earn rewards in terms of cash, you’ll know exactly what you’re getting and won’t have to worry about seeing it decline in value (unless inflation starts running amok, in which case you’ll have bigger fish to fry). Credit card companies can’t simply take away money they’ve given you, after all, but they can re-price their rewards offerings.
Change the way you think about rewards: This might seem contrary to the above, but you shouldn’t think of points or miles as being any different than cash. In other words, if you decide to continue using credit cards geared toward travel, don’t fall victim to the play-money syndrome that leads many consumers to overspend using credit or throw around rewards as if they hold no practical value. Credit card rewards can ultimately be quite lucrative, especially when you manage them with the same level of strategy and care as you would hard-earned cash.
Redeem often: Strategic management of points and miles requires that you redeem them frequently. This will allow you to minimize the threat of rewards devaluation because even if your credit card company does raise the threshold for redemption, fewer points or miles will be affected. Plus, you’ll benefit on a regular basis and therefore will not be as distraught should devaluation occur as you would be if you had been saving up miles for years in order to score a free family vacation, for example.
Watch out for the fine print: Certain credit cards limit the rewards you can earn or have stipulations that you must enroll on a quarterly basis or spend a certain amount in order to garner the highest rewards earning rate. You obviously need to pay close attention to these requirements, as they can make an offer much less attractive than it seems at first.

Ultimately, rewards are a bonus, but given what they can get you, wasting them is tantamount to flushing money down the toilet. No one in their right mind would do that, so let’s get our heads straight when it comes to making the most of what our credit cards can offer. In a time when the economy is on shaky ground and overspending is rampant, we can use all the help we can get!

This guest post comes from Odysseas Papadimitriou, the CEO of both Card Hub, a website that helps you find the best credit card for your needs, and Wallet Hub, a personal finance social network where you can review financial companies and professionals.

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Be Sociable, Share!

Leave a Comment

Previous post:

Next post: