Study: Too many strings attached to rewards programs

YONKERS, N.Y. (6/09/08)--As more retailers push their points programs, a new study finds fewer benefits, more restrictions, and a high level of frustration by consumers trying to cash in on those rewards (Consumer Reports July 2008).

Consumers Union, publisher of Consumer Reports magazine, reports that about 85% of U.S. households take part in at least one rewards program. And the list of providers keeps growing: supermarkets, drugstores, warehouse clubs, gas stations, bookstore chains, and more (Forbes.com June 2). But the trend seems to be veering away from rewarding loyal customers and leaning toward making it virtually impossible to cash in on those hard-earned points.

Even programs that do double duty as credit cards may not be worth the effort (Reuters June 2). For example, many rewards credit cards carry higher interest rates than traditional credit cards, and if you rack up charges just for the points, you may be paying more in interest and fees than you receive in savings and point benefits.

What can you do to avoid the rewards program blues? Consumer Reports offers these tips:

• Choose programs based on your own spending habits. Rather than enroll in several programs, concentrate your spending on one or two and build rewards more quickly.

• Consider cash-back programs. If you rarely or never redeem your points, cash-back cards may be your best bet to get at least some reward from your spending.

• Plan your spending. For example, know how many points you need to get what you want.

• Factor in the annual fee. If the rewards program charges you, say, $25 a year and your balance builds ever so slowly, you may be better off ditching the program altogether.

• Steer clear of credit card rewards programs if you carry a balance. High interest rates on those balances will quickly erase any rewards benefits you build up.

• Watch for limits. Some rewards programs place a cap on benefits earned and a deadline for when the rewards must be used.

• Don't overspend just to get a freebie. If your focus is on the prize rather than the costs associated with getting the prize, you may wind up paying more than it's worth.

• Don't leave rewards on the table. According to a 2006 survey by GMAC Mortgage and Harris Interactive, more than 41% of reward cardholders either rarely use or abandon their reward stash (CNNMoney.com June 2).

Printed Friday, January 9, 2009

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