Credit card rewards are a real rip off

What has your rewards card done for you lately? Not much most likely.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Jessica Dickler, staff writer

America's Money: Debt crush America's Money: Debt crush America's Money: Debt crush
Americans deep in debt are struggling more than ever amid the credit crisis and economic downturn. See how people got in the hole and what they're doing to get out.
CDs & Money Market
MMA 0.69%
$10K MMA 0.42%
6 month CD 0.94%
1 yr CD 1.49%
5 yr CD 1.93%

Find personalized rates:

Rates provided by

NEW YORK ( -- You got burned with frequent flier miles, which were nearly impossible to redeem and hardly worth the hassle, so credit card issuers turned to other kinds of incentives to entice you to charge more. But most rewards programs aren't much better, and consumers are still eager to sign up for them despite the same old traps.

About 85 percent of U.S. households participate in at least one rewards program, according to a study released Monday by Consumer Reports. And though rewards do spur consumers to spend more, the study found that confusing rules and restrictions make most reward cards more trouble than they're worth.

"They make it 100 times more complicated," said a former marketing executive at CitiCards, referring to the popular rewards programs. For example, when you read the fine print, you might find that some rewards are limited to certain brands, or expire if not used within a certain timeframe.

Of the different reward cards available, the most popular programs are cash back, where customers receive a percentage of expenditures back in either a check or money off of their next bill. Other reward cards rack up "points" which can be redeemed for various items, or offer people discounts at certain hotels, stores, restaurants and gas stations.

And while cash back, gas and grocery rewards credit cards can offer some relief for costly essential items, they often carry higher annual percentage rates than traditional credit cards, Consumer Reports said. Looking at some of the more generous credit card rewards programs, the study found that rates varied from 9.74% to as much as 19.99%.

"If the rates are high, the cost to carry a balance will often erase any savings the rewards program may offer," said Amanda Walker, senior project editor at Consumer Reports.

Some reward cards also carry annual fees, making it even less likely that consumers will come out ahead. And even the more generous programs have limits on how much consumers can earn in rewards, not to mention looming deadlines by which the rewards must be used.

And in addition to the complicated rules, fees and higher interest rates, customers are leaving unused rewards on the table. More than 41 percent of reward cardholders either rarely or never even bother to use their rewards, said a 2006 survey by GMAC Mortgage and Harris Interactive.

To avoid the pitfalls and get the most back from your card, Consumer Reports offers these tips:

Consider where you shop. Opt for cards that will earn rewards at stores and services you use most often, or offer savings on items that you actually buy regularly. Airline and hotel discounts, for example, are not particularly useful for those who aren't frequent travelers.

Project your spending. Figure out how much you're likely to spend, and translate that into cash back or points, depending on which program your card uses. For points, figure out how many you need to get the rewards you want. Make sure to subtract the annual fee, if your card has one. If you realize that you'd have to spend a small fortune to earn only a tiny reward, try another card.

Favor cash back. Points often end up unused - a plus for the credit card companies who got you to spend more without having to give you anything in return. But cash back accumulates without you actually having to do anything. Plus, Consumer Reports found that cash back cards tend to offer better rewards than point equivalents.

Skip credit if you carry a balance. If you don't pay your bills of in full, you may want to pass on the rewards cards altogether. Because rewards cards often have higher interest rates, you may end up paying much more in interest than you reap in rewards.

Do the math on do-good programs. Do-gooders might be enticed by cards that give rewards to charity. But they usually pay very low rates - about 25 to 50 cents for every $100 you charge. You're probably better off going with the cash back, and then sending money to a charity yourself. You'll end up with a larger donation - and a tax deduction.

Use airline miles fast. If you do still use airline miles and manage to save up enough for a trip, make sure to use them right away. Airlines are always changing their redemption rules, and considering how much the big carriers are struggling these days, holding onto unused miles can cost you.

Avoid temptation. Research has shown that credit card customers are tempted to charge more in order to earn points toward a reward such as new digital camera or set of golf clubs. But overspending for a "freebie" often doesn't pay.

Are you buried under a pile of debt and need help getting out? Did you recently manage to pull yourself out of debt and want to share your story? Tell us about your experience with debt and how the current credit crisis is affecting you. Send us your photos and videos, or email us to share your story.  To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.