Financial Expert Talks Credit Card 'Rewards'

The program's money coach, Alvin Hall, offers listeners tips on how to manage credit cards to optimize rewards.

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MICHEL MARTIN, host:

And now let's talk about money, or more to the point - credit. The holiday season is a pause and it's so easy to be tempted by all those credit card offers in the mail with features for cash back or airline miles and other rewards.

Maybe some of us think we can beat the system, get a bunch of cards, switch off between purchases to maximize the benefits.

Our money coach Alvin Hall joins us from our New York Bureau with some advice on managing your reward cards. Alvin, welcome.

ALVIN HALL: I'm not sure I'm giving good advice today.

(Soundbite of laughter)

HALL: Thank you. Glad to be back.

MARTIN: Well, so how many cards do you have?

HALL: Three.

MARTIN: Three.

HALL: I only have three and I'm very specific. I like air miles and all my cards are tied to air miles. All those other things, cash back, all of that doesn't mean anything to me. I want to be able to buff myself up to business class when I get on a plane.

MARTIN: Do you actually do it? Do you actually use that rewards?

HALL: Oh, yes. I used only the upgrades on the plane. The hotels and stuff that I use sometime, but they are less important to me. I generally don't mind paying a hotel bill, but I do like to fly business class for free.

MARTIN: Now do you think that most people actually get these cards with the idea that they're going to actually cash on these rewards and then just don't do it. It's something like prepaying for gym membership and you're not going to go. After two months, you're not going.

HALL: I think that many people do benefit if they get the ones with cash back, but all the various awards - to buy computers, to get free hotel rooms, to get free airfare. The majority of people let them dwindle away because they never actually reach a threshold where they can take advantage of them.

So a lot of them sound good? But really, they, you must choose the one that's suitable for your lifestyle and where you're going to spend the money the most. For example, it would be completely ridiculous. I mean, you get one that says cash back on your gasoline purchases. The last time I drove a car, can't remember when.

MARTIN: We're just different. You live in New York where a lot of people can get by without a car. I think…

HALL: Yes, but that's what I mean, as I live some place elsewhere (unintelligible) sense of my life. I might get one that offered a discount on the gasoline that I buy.

MARTIN: I guess what I'm wondering is - it's like those department stores where you get a rebate at the end of the year, something like that. And then they keep sending you these notices saying, okay, well, if you only buy extra amount more, you'll get four percent back instead of two percent back.

What I'm wondering is do people actually wind up saving money, although they spend money thinking about they're going to save money and really, all they've done is spend more.

HALL: Most people end up spending uselessly in order to try to get the benefit because they'll keep looking at the price at the end of the day. Forget they're spending money to do it. It takes a lot of time to keep up with all of the different prices between cash back, two percent back, four percent back.

And the companies are becoming smarter. Today, if you don't reach the threshold, you might get a letter and you might discover that indeed that reward or the benefit program has changed. So I think that most people spend too much time trying to be too clever with far too many credit cards.

MARTIN: What's the best way to maximize this? If you're going to play that game, what's the smart way to play?

HALL: Choose a benefit that's most applicable to the things you do most. If you mostly used your credit cards to shop for food, buy gasoline, buy things at a pharmacy - then, if they are the places that you will get the money back, then do that. If you're like me, you travel a lot for business and you really find that the air miles are the most useful thing focused on that.

Choose the benefit that fits your lifestyle. Many people think, well, I'll go out and get this credit car and want to switch to the other benefit, I'll do that. I want to ask some of these people. How much free time do you have? Isn't there something you could do better with your time that would help you earn money in a much more productive way, rather than trying to be so clever?

MARTIN: And, I guess, your advice is always trying to pay off those cards at the end of the month.

HALL: Always pay them off at the end of the month because typically if you don't pay them off or you carry a balance too long, a lot of the issuers will take away the benefit.

MARTIN: Really?

HALL: Yes.

MARTIN: And affecting your credit, would it not affect your credit rating to have a lot of cards or…

HALL: Yes, having too many credits cards is a problem because the creditors will look at the number of cards you have and the amount of available credit. And they'll say, what if this person loses control and decides to use all of his credit at one time? Then we will be in trouble. We will be saddled with losses.

MARTIN: But how many is too many? How do you know what's the right amount for your budget?

HALL: You don't really know what's the right amount for your budget. There's no sort of perfect plan for that. My rule of thumb that I say to everybody, you should have no more credit cards than you can afford to pay off at the end of every month.

For most people, two credit cards is more than enough. That's all they will ever need. When people start getting store cards and two Visas, two MasterCards, American Express, they're going wild. They're losing control at that point.

MARTIN: All right. Alvin Hall is a financial expert. He joined us from our bureau in New York. Alvin, thank you again.

HALL: Thank you, Michel.

MARTIN: And that's our program for today. I'm Michel Martin and this is TELL ME MORE from NPR News. Let's talk more tomorrow.

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