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Thursday, February 20, 2014

Credit card rewards foolishness - Pay attention!

In an effort to get people to use their cards, and use them more often, many credit card companies have instituted various reward programs. Most of these take the form of points that you earn as a percentage of what you spend (usually 1 to 5%) and then you can use the points to get cash back, gift cards, and a host of other items.

If used intelligently these reward programs can be beneficial. If you only spend what you were going to anyway, and don't carry a balance on the card and incur interest payments, then you get your percentage every year and it's basically free money.

But there is one thing I have noticed about most credit card rewards programs, and it illustrates why you should always pay attention, and always calculate everything:

The reward programs almost always offer gift cards and cash back as option to redeem your points, but the gift cards are usually at the exact point-cost as the cash back! So in other words, it takes the exact same amount of points to get $50 of money that you can only spend at a single merchant as it does to get $50 back in cash that you can spend anywhere!

Why would anybody go for the gift cards? On one of my cards, at the higher denominations of point redemption, it is actually a WORSE deal to get gift cards than it is to get cash!!

I have no idea why anybody would spend MORE points to get less money and less options, but it just goes to show you why you need to pay attention and calculate everything!

-The Money Monk

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