Rewards Programs

Merchants and credit card companies continue to offer incentives for consumer loyalty and frequent shopping. Here are some tips to consider on the upside and downside of rewards to decide if there is real value in participating in these offers.

Merchants and credit card companies have stepped up their game, offering consumers more appealing incentives in return for their loyalty and frequent shopping.

In a perfect world, it can be win-win for both sides. You get rewarded for shopping somewhere you already like (or with credit cards you’d already be using), and merchants build a steady stream of loyal repeat customers.

Rewarding Your Habits
The best way to take advantage of rewards programs from a merchant or credit card company is to figure out how you can get the maximum amount of benefit with the least amount of expense.

One way to assess the value of a rewards program is to track your spending over a period of time. Do you see any patterns? Where do you tend to shop the most? Where do you buy most of your necessities, like food, gas and healthcare items? Many of these stores might make good candidates for reward program participation.

For example, rewards cards or key ring tags from your favorite drugstore or supermarket chain can produce a steady stream of coupons that often relate to products you’ve purchased in the past – and will likely buy again. So, why not get rewarded for buying things that are already part of your budgeted expenses?

Get The Credit Card Rewards You Want
While they can be a bit trickier, rewards programs tied to credit cards can offer a bigger variety of rewards. These include:

Cash back. These cards return a percentage of the money you spend on your purchases – often less than 1% — as cash back. The cash rewards can often be so small as to be negligible. But if you make large purchases, you may be entitled to even bigger rebates.

Points. These cards reward you with their own currency, in the form of points you can redeem for an array of products and services once you’ve reached a certain milestone. Points are less flexible than cash, and you’re limited to the things the program offers. But, you may find a good deal on a specific item you’re interested in.

Miles. Some cards, especially those offered in tandem with airlines, will reward you for purchases with miles that can ultimately be redeemed for free plane tickets.

As appealing as these rewards may seem, paying off your balance at the end of month is key to holding down additional costs. If you’re carrying a balance and paying interest, any rewards you’re earning likely aren’t worth it.

Too Much of a Good Thing?

As valuable as rewards-based programs and credit cards can be, it’s worth remembering that they don’t make sense when the cost of accumulating rewards isn’t worth the benefit. Rewards from merchants or credit card companies that entice you to buy more than you want or need – just to reach an arbitrary milestone – are not a great use of your money.

For example, many credit cards that offer rewards also charge an annual fee that can outweigh the value of anything you earn from your purchases. Many of these cards also have “spending tiers,” which mean you’ll only receive the full advertised reward under specific circumstances. Other cards have seasonal limitations, and only allow you to redeem your points at certain times of the year.

Keep in mind that many credit card companies are extremely savvy at trying to entice “purchase acceleration” by letting you know you’re closing in on a rewards milestone. Don’t let an email convince you to buy something you don’t need or want.

The bottom line: Rewards programs can be big money savers when you’re reaping the benefits of your existing spending habits. But, if you need to change those ingrained habits to get the payoff, it might be smart to wait for a better offer.