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OK, I'll buy a couple $50 Best Buy gift cards while I'm at Giant Eagle getting my regular $100 worth of groceries. This gets me 80 cents off per gallon of gas -- a savings of $12 -- and I get 5 percent cash back from my credit card for the groceries and the gas! And then, when I go to Best Buy, I'll use the gift cards and my Reward Zone card and...
Yes, the scenario above will help you stretch your bucks.
Credit-card rewards programs, especially when combined with supermarket rewards programs, really do work. But they are not a magic wand and, in some cases, actually can wind up costing you more money than you save.
Most credit cards with rewards programs carry higher interest rates than those that don't. That means those of you who carry a balance could lose more in interest payments, not to mention late fees, than you gain back in cash or points. The credit-card companies count on it.
And studies have shown that those who use rewards programs tend to spend more, according to Consumer Reports.
So borrowers beware!
If you carry a credit-card balance from month to month, you're better off with a lower-interest, no-rewards card.
If you don't have credit-card debt, cash-back or points rewards programs make sense.
"They can be very profitable," said Curtis Arnold, founder of cardratings.com, of cash-back cards. "I know there are skeptics, but I'll be glad to show them my statements; my wife and I got a $1,000 credit, with no fees, no interest."
Arnold, as well as Bill Hardekopf, chief executive of lowcards.com, both say cash back is the gold standard of rewards programs and is better and easier to use than a points program. They warn against airline rewards programs, saying it is getting harder to redeem points.
Supermarket points programs, such as Giant Eagle's "Fuelperks" and Kroger's "Plus," are good deals as long as you don't change your spending habits.
Let's say you're about to embark on a home-improvement project. Buy a $200 Home Depot gift card at Giant Eagle, and you'll save 80 cents a gallon on gas and get back as much as $10 from your credit-card company if you have a cash-back card.
That's smart shopping -- as long as you don't let gift cards expire unused.
Giant Eagle customers in the Columbus area have saved about $23 million in fuel costs this year, spokesman Dan Donovan said.
Dispatch subscribers can accumulate points and perks through Reader Rewards.
About 85 percent of U.S. households participate in at least one rewards/points program, according to Consumer Reports.
There are well more than 1,000 different credit cards to choose from.
"You have to look at the sizzle and the steak," Hardekopf said of the plethora of credit-card junk mailers and television commercials. "Credit-card companies are the best advertisers and marketers around, and every card looks good, but you need to look at the meat of the offer."
Both cardratings.com and lowcards.com can help consumers get past the sizzle to the meat. The sites provide lists of credit cards, what they offer and ratings.
Always remember: If it sounds too good to be true, it usually is. Credit-card companies are in business to make money and are very good at it.
"Less than half of all people pay them off in time," Hardekopf said. "And about a third of all the revenue of credit-card companies doesn't come from interest, but from fees, like late fees."
The credit-card companies, he said, generally get 2 percent of all your purchases, which is how they are able to give you back 1 percent or 1.5 percent.
Arnold and Hardekopf both carry an American Express Blue Cash credit card in their wallets. It is a tiered, cash-back card that pays more once customers charge $6,500 in a year and has a moderate interest rate.
"But if you only spend $1,000 a month, it's not a good choice -- it will take you too long to get the higher rebate," Arnold said. "You need to go for a card that gives you a more aggressive rebate right out of the gate."
swartenberg@dispatch.com
To see more of The Columbus Dispatch, or to subscribe to the newspaper, go to http://www.columbusdispatch.com. Copyright (c) 2008, The Columbus Dispatch, Ohio Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
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