Managing those rewards, however, can be a challenge. Sure, the perks can be fantastic (I can’t count how many times I’ve flown free on frequent-flier points or enjoyed free car rentals). But the pitfalls can be costly. Why? Credit card companies, airlines, retailers and supermarkets rely on their programs to get you to do at least three things: come back again and again, increase the volume of your purchases, and become immune to the pull of the competition.
All this is good for them, but you need to make sure it’s good for you. You don’t want to be limited to one retailer, airline or supermarket. And while you want choices, you don’t want to belong to so many programs that they become unmanageable or you’re tempted to overspend. Read on to learn the best way to use rewards programs, and find out which of those cards really deserve a place in your wallet.
Rewards Credit Card
How it works: With each qualifying purchase on the card, you earn something: miles, points or cash. Once you accumulate enough points or miles, you can redeem them to rent a car, buy merchandise or take a trip. If it’s a cash-back card, you’ll receive a statement credit or check.
Why you want it: If you enjoy traveling and are a heavy credit-card user, a card that earns miles might be a great way to earn free travel. If you’d rather shop, then a card that has a great merchandise program might be more to your liking. Just make sure you’re up to organizing and keeping careful track of your points or miles account. Cash-back cards are less of a hassle in terms of upkeep, but you still need to make sure you’re getting back the right dollar amount.
What to look out for: "Overall, rewards programs were diminished (both in the earn rate and number of offers) in the 12 months leading up to the February effective date of the CARD Act," says Curtis Arnold, founder of CardRatings.com. This was due to the credit crunch and unintended negative consequences of the Act—which was designed to protect consumers, but prodded credit card companies to offer fewer rewards cards and lower their points while they were sorting out the regulations. Fortunately, as the companies have adjusted and the credit crunch begins to loosen, the trend is starting to reverse, Arnold says.
What does this mean for you? Interest rates on some cards still are higher than they were 18 months ago, and cards that were no-fee before may now have fees. This means you could pay $50 to $100 just to have the card; if you carry a balance, you could pay around 20 percent interest on top of the fee. This can make it virtually impossible to earn enough rewards to offset the interest.
Bottom line: If you generally carry a balance, forget a rewards card—even one with no annual fee and even if you have a terrific credit score. The interest rate is just too high for you. Better to pay off the credit cards you have now, then reconsider a rewards card later. If you charge a lot and want continued access to the best rewards, make sure your FICO score stays above 740, says Liz Pulliam Weston, MSN Money columnist. (To find out how to get your credit report, go to womansday.com/report.)
"Also, keep track of your rewards and their value when you cash them in," she says. "If you’re not earning at least 1 percent of what you spend on the card, look for a better offer." And if an issuer imposes a fee you don’t want to pay, call and protest. "If they won’t waive the fee and you have good credit and other accounts, close the account; it shouldn’t do major damage to your credit score," says Weston.
Airline Rewards Club
How it works: Airlines reward customer loyalty with frequent-flier miles. Once you earn a certain number of miles, you’re usually eligible for a free round-trip ticket between cities that airline services.
Why you want it: If you’re flying anyway, you may as well collect all the miles you can. For most airlines, there’s no cost and very little record keeping. Your account is maintained at the airline’s website, where you learn the terms and conditions and watch your account grow.
What to look out for: If you’re not a frequent flier but want to earn miles, compare the airlines’ programs and choose the one that allows you the greatest opportunities to earn those miles or points for non-flight activities. Also, keep in mind that while most frequent-flier memberships are free, there will probably be some fees later: for mileage redemption or on accounts with no recent action, for example. Be sure to read the terms and conditions closely. And book way in advance: Mileage may be subject to limitations, blackout dates and expiration.
Bottom line: If you fly at all, join all the airlines that service your area even if you have no plans to fly right now. Then try to book all of your flights on the same airline to start racking up points. Just be aware that redeeming points for the exact flights you want can be a challenge.
Check out "10 Awesome Airline Perks" to see which airline will offer you perks that are hard to pass up.
Supermarket Rewards Club
How it works: To join, simply fill out an application form. At checkout you must present or scan your club card to get the store’s sale prices. Most supermarket clubs offer additional rewards to active members (e.g., a free holiday turkey, a 10-percent-off coupon for your next shopping trip).
Why you want it: The sales!
What to look out for: Once you sign up, the store knows a lot about you (see "You Have to Give to Get," below). Also, big chain supermarkets are typically the highest-priced stores in town. Their sales make some items reasonable, but paying full price for others can offset those savings. A savvy shopper will stick to sale items (also called "club savings" or "club specials") and go easy on the rest.
Bottom line: If you don’t want to disclose personal information, steer clear. If you do want to join and there are multiple supermarkets and grocery stores in your area, join all the clubs. You never know when one store will have a great price on chicken, while another has a big sale on frozen vegetables.
Drugstore Rewards Card
How it works: Complete an application to get a club card. Use this card at checkout to get the sale prices and earn cash-back rebates.
Why you want it: Your club card will give you discounts on a variety of items, even prescriptions at some stores. There’s also very little to do to manage your rewards.
What to look out for: Giving your personal information is part of the deal. Some chains cash in your rewards and deduct the amount from your next purchase; others offer cash back after you’ve earned a certain amount. Know what yours offers beforehand. And remember, it’s easy to get hooked on loading up your rebate account or earning double bonus points. Don’t be tempted to buy what you don’t need!
Bottom line: If you don’t mind giving your information and you can control your spending, sign up. It’s foolish not to benefit from the sale prices if you use these stores.
No comments:
Post a Comment