Credit Cards: Worst Ways to Redeem Rewards

Last Updated Jul 15, 2010 11:20 AM EDT

This article is part of a 2-part package on rewards cards. To read the other article, click here: 5 Best Ways to Get Credit Card Rewards.


In the land of credit cards, all rewards points are not created equal. Airlines are becoming stingier in the ways they redeem miles, rewards catalogues are full of overpriced goods, and some cards will even slash your cash back at certain times of year. Meanwhile, banks have recently reduced the value of their credit card rewards programs, so, depending on the prize you choose — gift cards, plane tickets, an iPod — points can swing in value from a relatively generous 1.8 cents apiece to a puny .03 cents.

To get the maximum bang for your plastic buck, you’ll need to know the tricks for how to use your card and, once it’s time to cash in, how to spend the points you’ve racked up. If you’ve chosen the right rewards program and you spend the points correctly, the 20,000 points you racked up this year could be worth $360. Make the wrong choices and those same points could be worth $60 ... or even zilch. Our related story shows you the 5 best ways to redeem rewards. Here are the six worst ways:

1. Overpay for Catalog Products

Those Sky Mall-like rewards catalogs filled with everything from vacuum bags to iPods look tempting. But you could be overpaying wildly by using your points. “It gets very difficult to quantify how getting X points for an item converts to dollars,” says Ken Paterson, vice president of research operations for Mercator Advisory Group, a research and consulting firm focusing on the payments and banking industry.

You could, for example, redeem 10,000 American Express Membership Rewards points for a four-piece Pyrex set whose look-alike sells for $47 on Amazon.com. That’s a lousy deal, considering that the average value of an AmEx point is about a penny, according to credit-card analysis site PlasticIQ.com.

Before redeeming with a rewards catalog, search online for the price of the item and see whether your point conversion is a decent deal.

2. Delay Booking Flights on Miles

Getting where you want to go with reward miles isn’t just tricky; it can also get increasingly expensive. Card issuers love to quietly jack up the mileage conversion values for flights over time, raising the cost of the flights. “Those tickets to Hawaii might go from requiring 40,000 points to 50,000 points over time,” says Brian Riley, research director at TowerGroup, a financial services advisory firm.

So if you’ve racked up miles, use them as soon as you can on domestic flights, before the airline’s program changes, rather than holding out until you’ve amassed the massive number of points needed for a free international flight.

To help redeem rewards quickly, if you’re shy the necessary points for a flight you plan to book, try a points-trading site such as Points.com. You might be able to exchange points you don’t need from another card for mileage points someone else at the site has for your airline. Points.com charges a 1-cent-per-mile fee to trade, so it’s best if you’re less than 10,000 miles short of your ticket.

3. Pay a Steep Annual Fee

Carry a card with an annual fee of $50 or more and you may accumulate rewards faster than with a no-fee card. But unless you’re really racking up the points, the cost is likely to exceed the value of the extra points. Many issuers offer a no-fee card and a card with an annual fee that’s a bit more generous with rewards — and in most cases you’re better off going with the free card.

4. Fail to Qualify for Your Card’s Rewards

Some cards only dole out their biggest rewards to serious chargers. For instance, the Chase RealCash Debit Card requires that cardholders spend $1,000 a month to earn the maximum 3 percent cash back on purchases. (There’s also a $25 annual fee.) Other cards limit rewards to spending at particular types of stores or specific chains.

Some companies rotate their best rewards quarterly. The Discover More Card, for example, is offering a 5 percent cash-back bonus on up to $300 in purchases on gas, hotels, movies, and theme parks from July 1 through September 30. Planning to take a Columbus Day road trip through New England to see the foliage? Too bad. You’ll only get 1 percent back when you fill up at the pump.

5. Buy an ‘Experience’

How’d you like a “free” trip to the Indy 500, or a week at a Wyoming dude ranch? Some card issuers let you cash in points for outings like those or hard-to-get tickets. Occasionally, the point programs may work out for you. For instance, run up 15,000 Bank of America WorldPoints (valued at about $150) and you can snag two Chicago Cubs box seats and a catered pre-game meal. The two game tickets alone are worth $96, and the meal could easily run $40 apiece, so this is a decent deal.

But as a general rule, unless it’s an experience money really can’t buy, you’ll usually get a better deal — and a better ability to tailor the experience your way — by paying cash.

6. Make a Late Credit Card Payment (Even One)

Because the credit card reform law largely ignored rewards programs, it’s one area where credit card issuers can still turn the screws.

American Express changed the fine print on its Blue and Blue Sky cards, for instance, and now, if you accidentally make a late payment, you’ll forfeit all the points you would have accrued during that billing cycle. (You can buy them back for a $29 fee, but that wouldn’t be wise unless you had more than 2,900 points at stake.) If you’re 60 days late on a Discover More card payment, you could watch your accumulated Cashback Bonus vanish along with your excellent credit score.

If you do accidentally miss a payment, call your card issuer to negotiate keeping your points. Then sign up for automatic bill-pay or monthly online reminders so it won’t happen again.

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  • Melody Warnick

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