Valuations in the credit card industry are always changing, according to Daisy Hernandez, credit cards editor at The Points Guy. Recent data reveals that 48% of U.S. cardholders carry a balance from month to month, and among them, 67% attempt to maximize their rewards, as highlighted by a Bankrate survey. This pursuit of rewards can lead to significant financial missteps, especially given the high average credit card interest rate of over 20%.
Matt Schulz, chief credit analyst at LendingTree, points out that even the best rewards cards offer only a modest return of about 3% to 6%. He cautions against the alluring narratives portrayed by influencers.
"One of the biggest fundamental mistakes that people can make is, they see influencers talking about flying first class to Paris or Bangkok, and they don't necessarily understand the work that goes into it." – Matt Schulz
For those who manage a cash-back strategy and settle their balances monthly, the risk is minimal. However, the fluctuating value of rewards points necessitates a proactive approach. Hernandez shares her experience with hotel rewards points, which depreciated from 0.8 cents to 0.6 cents within months. This volatility underscores the importance of timely action.
"If you're looking to get the most value out of your rewards, you're checking daily." – Daisy Hernandez
To enhance rewards value, transferring points to a partner of your card issuer can be beneficial. Nevertheless, opening multiple cards in an attempt to maximize rewards can escalate the risk of mismanagement and missed payments. Ted Rossman emphasizes the peril of carrying a balance while chasing rewards.
"It's a big mistake because the average credit card interest rate is more than 20%." – Ted Rossman
Rossman also warns against exchanging travel points for merchandise, as cash back often proves to be a superior option.
"They may try to get you to exchange your [travel] points for merchandise like luggage or kitchen tools, and you're usually better off just getting cash back." – Ted Rossman
The general advice remains to earn and immediately utilize points.
"You don't want to hoard points and miles." – Ted Rossman
"The general guidance is, earn and burn." – The Points Guy
To truly capitalize on rewards, one must act swiftly and decisively on lucrative deals. Failing to do so can result in suboptimal use of points.
The journey of maximizing credit card rewards is fraught with challenges and requires vigilance. As valuations fluctuate, cardholders must remain informed and agile. By paying off balances monthly and making informed decisions about point usage, individuals can navigate this complex landscape effectively.