Reward Programs And Their True Benefits
The true cost of a rewards program
On paper, reward programs sound enticing. The idea of earning gifts simply from making purchases with your credit card sounds like it’s a win-win situation. But the truth is that these reward programs can change at a moment’s notice, and sometimes these cards can cost you more than the value of the rewards.
- How reward programs work
- Frequent Flyers offered prepaid travel cards
- Should you sign up for a rewards program?
How reward programs operate
Cards with a reward program will give you points for every dollar spent with your card. Afterwards, you have the option to redeem those points for goods, or even airline flights. These cards often come with higher interest rates and fees.
If you use your card often, pay for balance off in full, and do so within the interest-free period, reward programs can be great.
If you maintain a significant balance on your card each month without paying it in full, you’ll lose more money to interest fees and annual fees than you actually gain from the rewards. If this is your credit card usage style, it’ll be better for you to switch to a simple card with a lower interest rate. You can learn more about credit card balance transfers here.
It’s wise to keep up with any changes to the terms and conditions of your rewards program so you can always compare the costs against any changes in the benefits.
Frequent Flyers offered prepaid travel cards
A few airlines will offer their frequent flyers the ability to opt-in to a prepaid travel cards which are linked to their frequent flyer account.
Prepaid cards are a great solution to help you stay within your set budget and ensure you don’t spend more on your vacation while still earning your rewards points. Make sure that you understand all of the associated costs. Discover more about prepaid travel cards.
Should you sign up for a rewards program?
When evaluating rewards programs, ask yourself the following questions:
- Will you be using your card enough to qualify for the rewards?
- Will you have to make additional purchases just to earn these rewards?
- Will the program pigeonhole you into making purchases without finding the best-priced goods and services? (i.e. Will you be buying products that are more expensive, when you know you could save on your purchases by buying off-brand or elsewhere?)
- Will you be charged a fee upon redeeming your rewards points?
- Will you have to redeem the rewards points within a particular time frame?
Don’t fall prey to the marketing of “free” rewards. Be aware that most of these rewards are paid for with higher interest rates, annual, and administrative fees.