Understanding Your Credit Card Rewards Program

NEW YORK (MainStreet) — If you're like a lot of people, you have trouble understanding your credit card rewards program. Not understanding how a credit card rewards system works can defeat the purpose of having one: after all, why let all those points add up if you're not going to use them? We spoke to some credit card experts about how to understand your credit card rewards program so that you don't leave points lying on the table.

Is Your Plan Valuable?

Randy Hopper, vice president of credit cards at Navy Federal Credit Union, says that about two-thirds of people let their travel points expire. "You need to make sure that your card isn't just valuable from a rewards perspective," he explains, "but also that it's valuable across the board."

First and foremost, the card's value should be easy to understand. "You should be able to understand your plan without a degree," he says. "How flexible the plan is is key. It might look valuable, but could be very limited in terms of when or how you can redeem points."

Matthew Goldman, founder and CEO of Wallaby Financial, a company with an app to help you get the most out of your credit cards, reminds people that the terms and conditions for a rewards program won't be with the cardholder agreement, but somewhere else.

Different Kinds of Points

Points are accrued in different ways. "There are basically two kinds of points," says Goldman, "the kind where you earn one point and that's it and another where there are bonus points." There are also points systems with changing terms. Goldman recommends that people sign up for notifications from their credit card company.

"If a company changes its rewards program on a quarterly basis, there's usually a whole new set of fine print involved," he explains. What's more, you might even have to opt into each bonus points program on a rolling basis.

Caps and Limitations

"You need to look for words like 'select' and 'limited,'" explains Goldman. For example, a credit card might offer bonus points at "select" grocery stores that don't include the ones you shop at the most. A common example is fast food restaurants are often excluded from bonus programs for restaurants.

Hopper also points out that people need to be aware of tiered bonus points structures on their credit cards. "You might get 5% cash back on gas, but it's only on the first $100 a month," Hopper says. "After that, the percentage drops." Hopper recommends that people review their monthly budget and look at whether or not their spending is aligned with the rewards program in question. If not, consumers should look elsewhere for cards more in line with their budget.

Minimum Redemption Clauses

Some cards only allow you to redeem your points once you have a certain amount. For example, Goldman points out that Discover only allows you to redeem cash back in $20 increments. "You have to ask yourself how easy it is to get that money out," he says.

Red Flags

Hopper outlined a few red flags for us. While these aren't necessarily dealbreakers, they are examples of places where you should look a little closer at the program and see if it's right for you and your family. These include:

  • Earning Caps: Any time you see an earning cap, you need to look at your budget and see if it's going to limit the points that you'll actually be accruing.
  • Blackout Dates: If the blackout dates for a travel card are when you're usually traveling, it's not the right card for you.
  • Airline Limitations: Branded airline cards generally limit you to use your points on that airline, rather than whoever has the best deal.
  • Points Expiration: "You don't want to leave points lying on the table," Hopper says.
  • Statement Credit Vs. Cash Back: Cash back means just that: cash. Statement credits can only be spent on paying your credit card bill. "If you're only getting statement credit, that's not really cash back," says Hopper.

Bottom line? "You want your card to be doing the work for you, rather than the other way around," Hopper said.

Getting the Most Out of Your Rewards

"We encourage people to redeem frequently," says Goldman. "You might be able to get a super benefit for having 100,000 points," he says, "but these tend to not be the best deals." What's more, the value of points can change over time, meaning that 10,000 points can go from being worth $100 to being worth $50 overnight.

Finally, Goldman says that people should have fewer cards rather than more cards. "It's better to concentrate all of your points into one place," he says.

--Written by Nicholas Pell for MainStreet

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