Tight restrictions and confusing rules hamper many credit card holders from reaping their rewards, a recent study found.
The study, by Consumer Reports, found that 85% of U.S. households currently participate in at least one rewards card program. And in tough economic times, the magazine notes, circumspect consumers naturally gravitate to rewards programs to improve their spending power.
A recent poll conducted by the firm’s e-mail newsletter, Consumer Reports Money Adviser, found that 41% of subscribers carried between three and five rewards cards, with 9% holding between six and nine cards and 3% carrying 10 or more.
While cash back rewards programs are popular, rewards cards often carry higher than average annual percentage rates than traditional credit cards. Interest rates on such cards vary from 9.74% to as high as 19.99, Consumer Reports said.
“Carrying the right cards and ignoring the rest can save you a little money on your purchases, but consumers must choose programs that compliment their spending habits,” said Amanda Walker, Consumer Reports senior project editor, in a statement.
To avoid common mistakes in using rewards cards, Consumer Reportoffers the following tips:
· Project your spending. Figure out the amount you’re likely to spend into cash back or points. If it’s a points system, determine how many points you need to get something you want. If you’re using a credit card, factor in the annual fee.
· Go for cash back. In some programs, you may never redeem your points. And cash-back cards are often generous with rewards.
· Skip credit if you carry a balance. Rewards credit cards off carry high interest rates that will erode the reward value if you carry a revolving balance.
· Do math on ‘do-good’ programs. Cards that pass your reward to a charity usually pay 25 cents to 50 cents for each $100 you spend, which can’t be written off on tax returns. You might do better with a richer rewards card; just keep the money and write a check for the charity.
· Use airline miles quickly. Using frequent flyer awards is becoming difficult with airlines cutting flights. The best approach is to use the rewards from such programs as soon as you can, since rules also change frequently.
· Turn away from temptation. Consumer research shows that people with rewards cards typically charge more. The pitfall is overspending to get that premium reward.
The full report is available to magazine’s subscribers at Consumer Reports.
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