It’s summer, the sun is shining, the kids are out of school, and if you’re stuck in an office right now it’s understandable if you’re day dreaming about cashing in those stockpiled vacation days for a much-needed last-minute summer trip to a tranquil beach somewhere.
Or maybe you’re thinking about taking a vacation later this year, during the holidays. But with the economy still floundering and credit card debt levels rising, how are you to pay for this relaxing respite?
Credit card rewards are one option, especially if you have good credit. Banks have been offering unprecedented rewards value for the last few quarters in the hopes of luring the most dependable consumers into the fold and thereby insulate themselves from future economic turbulence.
If you sign up for the right card and meet an initial spending requirement, you can score a couple of free plane tickets, a number of complimentary hotel nights, or $400 in cash to use as you please.
What’s the catch? There isn’t one, really.
But whether you decide to take advantage of an initial rewards bonus or you’ve been hoarding points and miles for a long-awaited vacation, it’s important to consider the possibility of rewards devaluation.
What is Rewards Devaluation?
Rewards devaluation is when a credit card company increases the number of points and miles needed to redeem travel accommodations and other loyalty perks. In other words, it’s basically inflation for points and miles.
There’s no telling when this might occur, if ever, but there are a few steps that you can take to protect yourself.
Opt for Cash Back:
Unlike points and miles, cash won’t lose value as a result of a credit card company changing its policies. Even if an issuer raises the prices in its online shopping mall, you can always redeem for a check and then use the money to book travel accommodations directly with your respective airline or hotel of choice.
If you already have a points or miles credit card or you’d like to take advantage of an attractive offer, it’s important to remember that the risk of rewards devaluation increases the longer you wait between redemptions. It’s therefore best to set redemption goals that you can reach in a year or less.
Value Rewards Flexibility:
By now it should be clear that cash gives you more redemption flexibility than any other rewards currency, but it’s also important to note that not all points and miles credit cards are created equal when it comes to how you can use your earnings.
While many will only let you redeem for travel through a particular air carrier or hotel chain, certain issuers – most notably Chase – boast extensive rewards sharing partnerships that allow you to transfer your accumulated points and miles to their partners’ rewards programs in order to redeem for their services without sacrificing value in the process.
The more options you have for redemption, the less beholden you are to a given company’s pricing and availability.
Use the Island Approach:
The Island Approach involves using individual accounts for different types of transactions. For example, this might involve using a rewards credit card for everyday spending and a 0% card for debt management, or supplementing a rewards card that offers a high cash back rate on groceries with one that offers an attractive travel-oriented initial bonus.
In other words, it can help you avoid rewards devaluation by spreading your earnings out across accounts – much like diversifying your stock portfolio protects you from market vagaries. So file this tip under not putting all your eggs in one basket.
Seeing your rewards expire is basically the ultimate form of rewards devaluation. While rewards expiration is far less common these days compared to just a few years ago, it’s nevertheless important to read your user agreement to verify that no “use by” date applies.
It also bears mentioning that rewards are pretty much impossible to redeem once you’ve closed an account, so always make sure to cash out before laying a card to rest.
With those tips out of the way, you’re probably interested to know which credit cards offer those attractive initial rewards bonuses mentioned at the beginning of this article.
There are a number of really good deals out there, most notably the Chase Sapphire Preferred Card ($400 statement credit for spending $3,000 during the first three months; no annual fee in first year) and the Barclaycard Arrival Card ($400 to use on travel for spending $1,000 during the first 90 days; no first year annual fee).
The good news is that while these offers might change over time, the fundamentals of avoiding rewards devaluation will remain the same. So stay vigilant and have a great trip!
Odysseas Papadimitriou – a former senior director in Capital One’s credit card division – is the CEO of the credit card comparison website CardHub and the new personal finance social network WalletHub.