Don’t Charge Away Your Benefits

Reward programs that allow consumers to invest while they spend have limitations

For instance, the Citi Upromise card caps rebates at $300 per year. And with the minimum 2% rebate on purchases made through Stockback, $20,000 in charges generates only $400. But to fully reap those benefits, you’ll have to pay your balance in full each month.

Bill Koleszar, chief marketing officer of Vesdia, which runs Stockback, BabyMint, and other programs, says, “The thing that we try to impart to our members is that this isn’t the silver bullet of financial saving and investing. You can’t expect or hope that our programs are going to get you all the way there, because they will not. They can help in a meaningful way, but you need to do more.”

In addition, consumers must be involved with the programs over the long haul to reap any significant benefits. They don’t work like airline miles, gift certificates, and a host of other benefits that can be redeemed within a few short months. “It’s just earn, earn, earn and then hopefully, in 10 years, you’ve got a nice chunk of money that you can put toward your child’s college education,” says Ferguson. “It requires a sustained commitment on the part of the consumer to derive the benefits from the program. Whether they’ll do that, it’s probably too early to say.”

THE CARD GAME HAS PITFALLS
Even if a consumer is committed to a program for an extended period of time, there is no guarantee the card companies will have

the same commitment. Robert McKinley, CEO of Cardweb.com, points out that credit card companies reserve the right to change or end these programs at any time. “Anything could change—the grace period, the annual fee, or the 1% rebate could become a 1/2% rebate. And in this area there is less consumer protection because [the banks] tell you the program rules are subject to change.”

While the savings aspect sounds attractive, the flipside is that you’re racking up credit card debt in the process. In reality, you may be spending money that you could have saved from the outset. Stephen Brobeck, executive director of Consumer Federation of America, warns that the savings incentive should not affect credit card behavior: “These programs should not encourage credit card holders to borrow more money. If it does, the costs far exceed the benefits.”

Shine found that the lure of rebates did in fact change how she used her credit card. She planned on using it solely for emergencies, but in her desire to earn points, Shine charged and charged. “If I saw the Upromise symbol, I would pay with the Upromise card instead of cash, so I started spending more on the card than I anticipated.”

It wasn’t long before she accumulated debt on the card. Then she missed a payment. While the amount of her rebate did not change, her interest rate shot up to 15.99%. After a year in the program, Shine saved $52 toward her goddaughters’ college fund but spent $207 in interest payments. Shine’s experience illustrates that it is essential for consumers who enroll

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