Posted by: Dennis Hinkamp on Nov 7, 2012
Are Credit Card Rewards Worth the Risk?
|USU Extension family finance working group|
|USU Extension writer|
Ask a Specialist: How Can I Responsibly Take Advantage of Credit Card Rewards?
LOGAN, UT – A consumer recently reviewed his financial records and noticed something intriguing. During the month of July, he had $1,623 in short-term savings certificates that earned him a total of 76 cents for the month. Also for July, he used a credit card to pay for $1,592 of budgeted expenses from which he received $48.03 in cash-back rewards. He earned 63 times more on money he spent than on the money he saved.
In this era of tough economic conditions, almost any positive statement about using credit cards is met with a chorus of negatives. Admittedly, there is ample evidence of consumers who face dire financial challenges resulting from credit card misuse. But, at the same time, most reports show that around 50 percent of card holders pay their balance in full each month.
If a consumer has a solid history of successful credit card use, why not take advantage of the perks? A woman shares a credit card with her sister in order to maximize the dollar volume of purchases that convert to free airline travel for them. A man uses a card issued by a sporting goods store so all his purchases earn a reward that he can use for his favorite pastime.
Some consumers carry two cards that each offer basic cash-back awards for all purchases. Additionally, each quarter card users can sign up for rotating bonus rewards in certain purchasing categories such as drug stores, movies or gas stations. If you strategize, you can work it so the categories don’t always match. For example, from April through June, you can get an extra bonus buying groceries with one card, then switch to the other card to get similar bonus money for grocery purchases from July through September.
One consumer uses two cards, one for the bulk of his purchases and the other as a backup or secondary card. He recently received an offer from the secondary card issuer promising a $500 cash-back reward for making at least $2,000 in purchases each month for five months in a row. This reward was in addition to any other rewards he could earn using the card. So he switched from what was his primary card to his backup card for all his purchases and now figures to earn about 6 percent on the money he spends via credit cards in the upcoming months.
Consider these guidelines on credit card rewards to maximize their benefits.
• If you are not comfortable with credit cards, don’t start using them for the potential rewards. It is not worth the risk.
• Check the rewards program of the cards you currently use. One woman did not sign up for the bonus rewards her card offered and found she missed out on about $100 a year.
• If you are choosing a card rewards program, match it to your interests. A card offering airline miles doesn’t provide much if the user doesn’t travel.
• Use your rewards card for as much buying and bill paying as you can in order to maximize your reward. However, if there is a fee to use a credit card to pay the bill, don’t do it. The reward is not worth it.
• Always be mindful of the temptation to use the card too much. In the very first paragraph talking about credit card use, it said, “budgeted expenses.” Never charge something if you wouldn’t pay cash for the item.
• Be careful as you redeem your rewards. Some rewards have expiration dates. Don’t lose the rewards you have earned. Other cards allow their rewards to be received as, for example, $20 cash or $25 as a gift card to a specific store. That’s great if it’s a vendor you normally use. If not, you may be spending your reward money on something other than what is most important to you.
If credit card use is a comfortable part of your financial management routine, take advantage of rewards programs. It can be worth several hundred dollars in cash or products. If credit cards are a worry for your family, do not use them. The rewards money is not worth the anxiety and risk.
Direct column topics to Julene Reese, Utah State University Extension writer, Logan, Utah, 84322-4900, 435-797-0810; firstname.lastname@example.org