Should I Consolidate My Rewards Cards?

Should I Consolidate My Rewards Cards?

The Benefits and Dangers of Rewards Cards

These days, rewards credit cards aren't as beneficial as they once were. Frequent flyer miles are harder to use and other rewards credit cards are reducing the value of their offerings, too. Given that, many people are wondering, "Should I consolidate my rewards cards?"

If you pay off your credit cards every month, then there's no reason to consolidate the card balances. If you carry a balance, however, rewards credit cards can get you into trouble.

The Benefits and Dangers of Rewards Cards

If you're earning frequent flyer miles for a big trip or using a card to build points towards an auto purchase or gift certificates, then customer loyalty cards can be a big money saver. However, you start losing money the moment you carry a balance.

Most rewards credit cards come with high interest rates. If you're carrying a balance, any money you'd save with the reward is cancelled out by the cost of interest. In addition, these credit card companies are usually less willing to reduce your interest rate by a large amount. They also don't usually offer reduced rate or 0% balance transfer options.

How to Consolidate Rewards Credit Cards

If you're carrying a balance on one or more credit cards, you should either transfer the balance to a low-rate or 0% card, roll them into a home equity loan or line of credit, or pay them off with a personal loan. The goal is to reduce your total interest rate and

consolidate debt so you only make one large monthly payment rather than several smaller payments on high-interest cards.

Once your balances are transferred, stop using the rewards credit cards, or any cards, until your current balance is paid off. If you continue to create new debt on high interest cards, you'll still lose money on the deal.

How to Use Rewards Cards

If you don't carry a balance, or have successfully paid it off, then you can start using rewards credit cards to their best advantage. To get the most bang for your buck, follow this advice:

  1. Determine the reward you want. For example, if you're retiring soon and plan to take a big trip, start compiling rewards points with a frequent flyer card now.
  2. Determine how many points or miles you'll need to earn the desired reward. Airline mileage reward seats are released 330-350 days in advance of the flight, so plan to have all the miles you need accumulated by that date. You usually can't transfer points from one program to another, so choose one program to work toward at a time.
  1. Determine how many points you can earn in a month. One plan is to charge everything you can on that one card. Some cards give double-points for certain purchases, so make sure those charges go on the card. Some people even opt to put recurring charges like the cable bill on their rewards credit cards. If your child is heading off to college, ask if the school accepts credit cards for any tuition or fees not covered by financial aid. Many parents earn large rewards for using their cards for college expenses.
  2. Review points statements carefully for plan changes. If the program is changing, for example the time until the points expire has shortened, make sure you take the necessary steps to preserve or use your rewards before the new plan takes effect.
  3. Don't carry a balance on the cards or accumulate other debt.

When used properly, rewards cards can be great money-saving tools. If you carry a balance on them, consolidate now to avoid paying more interest, then start using them again once you're out of debt.