The Advantages and Drawbacks of Credit Card Rewards Programs

Advantages of Credit Card Rewards Programs

The biggest financial benefit is earning rewards for making everyday purchases. Depending on the card, you could earn based on a cash-back rate or get a certain number of miles or points per dollar, and specific retailers or purchase types could yield higher rewards. You might have flexible options to redeem these rewards for cash, statement credits, gift cards, travel purchases or merchandise.

Credit card rewards programs can also include introductory offers. For instance, you might get a hefty statement credit or points for spending a certain amount during the first three to six months as a cardholder, or you might not pay interest for 18 months.

Plus, you could get several extra cardholder perks, such as statement credits for subscriptions, free travel upgrades, extended warranty and insurance programs, special airport lounge access and discounts on vacation packages. Store reward credit cards can feature benefits like free shipping, special sales events and extended return times.

Disadvantages of Credit Card Rewards Programs

A recent Consumer Financial Protection Bureau report noted several issues that cardholders have faced when using credit card rewards programs. It listed Bank of America and American Express as institutions that it has taken action against for problematic rewards program practices.

For example, rewards programs can have confusing rules that make it harder to get the rewards or introductory bonuses advertised. You could also run into technical problems transferring rewards to travel partners or making redemptions on your creditor’s platform. Plus, you might lose all unredeemed rewards if the creditor closes the account.

Additionally, there can be issues with reward point values, which can fluctuate over time and depend on the redemption method. Devaluation might make the rewards not worth the card’s fees and interest, which may be higher than for non-reward card options.

Finally, there are financial risks with these programs since you may feel like you should spend more just to get rewards. This can harm your budget, put you into debt and hurt your long-term finances.

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What the new Labour government means for your money

Advantages of Credit Card Rewards Programs

Disadvantages of Credit Card Rewards Programs

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