NEW YORK (MainStreet) -- Credit card rewards programs continue to proliferate, but so does the value of rewards left on the table by consumers. A recent survey showed that $16 billion in rewards points and miles go unused each year.
To avoid allowing your rewards to go to waste, the first concept to understand is minimizing the impact of rewards devaluation.
What is rewards devaluation?
Rewards devaluation is basically inflation for rewards points or miles. In other words, it's when your already earned points or miles become relatively less valuable because a greater number is needed for the redemption of certain goods or services. Unlike inflation, however, rewards devaluation isn't usually caused by macroeconomic forces, but rather by decision makers at the companies affiliated with the respective rewards programs.
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Strategies to avoid devaluation:
- Gravitate toward cash rewards
Rewards programs tend to offer one of three rewards currencies: points, miles, or cash. A credit card company can easily devalue points or miles by changing how many it takes to garner specific perks, but the same cannot be said for cash. That means cash back credit cards offer the most straightforward, stable rewards available.
- Redeem frequently
If you opt for a points or miles-based rewards credit card, you won't be able to eliminate the threat of devaluation, but you will be able to minimize it. You can do so by choosing a rewards card that allows you to redeem your points/miles often. This will ensure that a limited number of points/miles will be "at risk" at any given time.
- Carefully read your credit card agreement
While the rate at which points and miles are accumulated is generally listed very clearly on online credit card applications, according to Card Hub's latest Credit Card Application Study, consumers may have to look a bit more closely to determine how much they are worth and what the thresholds for redemption are. This information is integral not only to frequent redemption, but also to redeeming points/miles for maximum value.
Avoiding rewards devaluation will help you get more from a rewards credit card, but there are other measures you can take to maximize value.
- Avoid paying more for branding
Oftentimes, rewards credit cards will be affiliated with a celebrity endorser, institution or sports team. We all enjoy showing off our interests, but there are plenty of other opportunities to do so that will not result in losing out on hundreds of dollars in free money.
- Use the Island Approach
The Island Approach is a credit card strategy that involves getting a couple of different cards, each of which provides the best possible rewards on a specific expense category, in order to maximize your overall earning. For example, someone whose two biggest expense categories are traveling and gas would be better off using both an airline miles credit card and a gas credit card than using a single all-purpose rewards card.
While this could all make it seem like credit card rewards are more trouble than they're worth, this is certainly not the case. The above tips merely outline optimization strategies, and even if you do not follow them to the T, you will still find rewards cards rewarding. Any free money is nice to have, after all.
Papadimitriou is the CEO of Card Hub. Visit CardHub.com for more information on rewards credit cards.