Does racking up rewards while shopping for gifts make you naughty or nice? It depends on how you manage your spending
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Collecting rewards points is the second biggest reason (behind ease of tracking purchases) that shoppers cited for using their credit cards this holiday season, according to a recent holiday spending survey by USAA. That comes as no surprise to creditors, which is why many of them have bumped up rewards perks for the remainder of the year (see our “2011 credit card holiday gift promotions” list). Of course, if you don’t use your rewards card programs wisely, you could end up on the holiday shopping naughty list (aka, blowing your budget!).
Check out these expert tips to help you navigate all of these credit reward stocking stuffers, and learn how to keep your spending in check.
- Look at the big picture. When it comes to using our credit cards wisely, we all start off with the best intentions, says Chris Hogan, a financial coach and speaker for Dave Ramsey (the money management expert and author). “A high majority of people have something happen between the time they buy and the time they have to pay, and it’s called life,” he says. Whether it’s an emergency car repair or getting less of a holiday bonus than you were expecting, suddenly the interest on the $300 digital camera you bought will end up costing you more than the points you earned are worth.
- Read the fine print. Hogan says that most people are too busy to really understand and maximize these programs fully, adding, “the disclosures and agreements are in little bitty fonts for a reason.” That’s why when you open a new rewards card for points, miles or cash back, you should take the time to understand the terms, says Andrea Woroch, a consumer and money-saving expert for Kinoli Inc. (which owns FreeShipping.org and CouponSherpa.com, among other sites). Some credit providers will rotate the types of purchases that earn multiple points and rewards, and some cap a fixed figure for which you can earn points/rewards, she says. “It’s very important to understand how and when your card will get you the most rewards possible so you know how to use it to your advantage,” says Woroch.
- Comparison shop. To earn points, you usually have to connect to retailers via the credit card’s “mall” or shopping portal. It doesn’t necessarily mean you are getting the best deal or price on that item, however, so it’s wise to do your research before checking out. “Before redeeming any points, compare prices for that same item elsewhere on the web. If you can find it cheaper elsewhere, consider using your points for better value on something else,” recommends Teri Gault, CEO of TheGroceryGame.com, and expert on consumer savings. Take into consideration that you might also be able to apply promotional discount codes found on coupon sites, or on the retailer’s Facebook and Twitter pages.
- Charge responsibly. Using a credit card rewards program is a great way to rack up points for future purchases, travel and cash back. However, the cards with the best benefits usually have higher interest rates, expensive late payment fees and high annual fees that typically begin after the first year, warns Woroch. In other words, big rewards come with big responsibilities. “In order to get the most out of the reward program, you must pay the balance off in full each month,” she says. And be sure to keep tabs on your statements to make sure your rewards are properly accruing.
- Spend your points wisely. When redeeming points, always consider the value of the points you’re using. You may be better off redeeming for a gift card, which you can give as a gift over the holidays, versus choosing an item that you can sometimes find at a less expensive price elsewhere. Either way, still be a smart consumer, says Gault, pointing out that the exchange rate can even vary among retailers’ gift cards. “I use my US\u2028Airways Mastercard as an example: For a gift card of $50,\u2028 some retailers had cards that cost 20,000 points (every 400 points equals \u2028$1). Some other retailers’ cards cost 22,000 points for $50 (440 \u2028points equals $1),” she says.
- Read up on the redemption policy. Some cash back reward programs actually give you more rewards if you wait to redeem until you reach a certain total amount of points. For example, says Woroch, “Bank of America‘s cash back card promises to reward 25 percent more to those customers who wait to redeem their cash back until it reaches $300.”
- Use credit for reasons beyond points. Points shouldn’t be the only reason to use your credit card. And if you use credit responsibly, there are actually a couple of benefits to doing so that have nothing to do with freebies, says Woroch. The biggest ones are return policy protection and extended warranty coverage, which can come in handy for big ticket items, she notes.
- Don’t overspend just to hit a point goal. Think about how many times you’ve spent “just a few dollars more” to qualify for free shipping or a percentage off (and later regretted it). No matter how you choose to pay, Hogan warns not to let promotions or impulse purchases cloud your judgment. “Set a budget for the holiday season so you know how much money you have, and what you can spend,” he says.
Rewards programs — especially super duper holiday-enhanced ones — really should have a place on the nice list. Whether your points end up a true bonus gift or as worthless as a lump of coal, though, is up to you.