Credit card rewards programs getting stingier

NEW YORK - Just as interest in cashing in points for the latest iPod model or airline tickets is likely to ratchet up, the banks that issue cards are making it harder to redeem those points.

"They're certainly raising the bar on redemption thresholds and return rates," said Jonathan Silver, chief executive of Affinity Solutions Inc., a New York company that develops and manages rewards programs. The weak economy is pressuring card issuers, and one way to reduce costs is to increase the number of points needed to redeem rewards, he said.

Silver said about 40 to 45 percent of existing credit cards have access to such programs, while about 20 to 25 percent of outstanding debit cards are linked to rewards programs.

Debit card use is growing, and banks that have targeted that segment of their business for increased earnings are expanding the rewards programs offered with them, Silver said. But debit card rewards programs tend to be "less rich," he added, meaning card users need to spend more in order to get enough points for the same rewards.

There are steps consumers can take to maximize the rewards they get, but advocates warn that rewards should not be the focus for those who carry debt on their credit cards.

"People that don't pay off their balance every month really want the lowest interest rate and the lowest fees," said Ed Mierzwinski, a consumer advocate at the U.S. Public Interest Research Group. "The rewards are not going to compensate for punitive interest rates and high fees."

Consumers had a total of $973.5 billion in revolving debt in November, the latest month for which statistics are available, according to the Federal Reserve.

Emily Peters, personal finance expert at Credit.com, said credit card issuers offer rewards because they encourage people to use those cards.

"It basically doubles the spending that you'll put on that card," she said. "If you're someone who has a debt situation, then that spending is rewarding something that you don't need to do."

Put another way, if you carry a balance or have a low credit score, "You're not ready to be rewarded yet," said Peters.

Whether you're looking for a new card or trying to take advantage of the rewards programs on your existing cards, there are some steps you can take to maximize the returns.

• Check the fine print of the rules that apply to your card or to one you're interested in getting, said Ben Woolsey of Creditcards.com. Some cards come with limits on the number of points, amount of merchandise or how much cash back a holder can get each year, he said.
• Some cards offer more points or a higher percentage of cash back for certain types of purchases, like gas or groceries. Others offer incentives for buying certain things at specific times of the year, like home improvement shopping in the spring. "It's a great way for people who pay off their balances to leverage that kind of nondiscretionary spending," said Woolsey.
• If rewards are your goal, look at an issuer's rewards Web site before applying for the card to make sure it's easy for you to understand and use. "If it's really complicated and you're not going to figure out how to use those rewards, those rewards don't matter," said Peters.
• Pay attention to any information sent by the bank that issued your card to make sure the rules for redemptions haven't changed. In some cases, it may make sense to redeem points as soon as possible rather than trying to accumulate points for a specific item.
• The points on some cards expire after set periods of time, so make sure you are aware of expiration dates and redeem any points that set to disappear, said Emily Peters of Credit.com. You will lose points for an account that is closed, she said.
• Making late payments or going over your credit limit could result in a freeze on your rewards program until your account is current, Woolsey said. The situation has to become drastic before you lose the points altogether, but you could stop earning and may not be able to redeem points on overdue accounts.
• The cost for merchandise offered through rewards programs is often higher than it would be at retail. Woolsey said a point is typically worth about a penny, which means an item worth 25,000 points should be worth about $250. You can often earn the best return with a card that offers miles for a single airline or points toward a specific type of gas. Gift cards can also be a good option, because you'll often get a full penny per point when picking them.
• Another way to counter overpriced merchandise in a rewards program is to take your rewards back as a credit to your account, if that option is available.
• Make sure your card doesn't have an annual fee. Some fees begin only after the account has been open for a year, but a large fee could offset any rewards you get back, Peters said.

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