Avoiding Credit Card Rewards Devaluation

Credit card rewards are extremely common. Creditors use reward programs to encourage their credit card holders to make purchases using the creditor’s line of credit. Creditors do this in order to make more money; the more purchases consumers make on their credit cards, the more creditors earn through interest.

credit card rewards

Yet, credit card rewards (despite all of their promises and benefits) are often hindered by the ability to actually use the rewards. For instance, a travel rewards credit card might curate “points” or “miles” for use on travel in the future. However, the number of “points” or “miles” needed in order to book an otherwise “free” travel is beyond what is possible to attain for the average traveler. After a certain amount of time, the “points” or “miles” go unused, and are then revoked from the credit card. Put simply, this situation is considered “rewards devaluation” and is not only problematic, but completely avoidable.

What is Rewards Devaluation?

Rewards devaluation occurs when the amount of points needed in order to redeem a reward steadily increases. Consequently, earned points become less valuable. Whenever a consumer makes purchases and earns virtual points, the points are tracked by the credit card company and stored to the credit card holder’s account. Still, rewards devaluation does not necessarily have to occur with a rewards credit card. At any time that reward points are stored on an account for an extended amount of time and are not redeemed, rewards devaluation can occur. Below are some rewards programs that utilize virtual currency and subject to rewards devaluation:

  • Citi ThankYou Points
  • Coca-Cola Rewards/My Coke Points
  • Chase Ultimate Rewards
  • Delta Miles
  • Hilton Points
  • Sephora Beauty Insider
  • Starbucks Rewards
  • Walgreens Balance Rewards

Is Rewards Devaluation a Problem?

In smallest words possible: Yes. Billions of dollars of reward points are not redeemed each year. While rewards devaluation isn’t the number one problem for unredeemed points, it certainly has an impact. Aside from the obvious problems of rewards devaluation (i.e. consumers cannot redeem points for promised rewards), there is another issue consumers must face. Because there are so many different rewards programs on the market (especially with credit card companies), consumers often face the difficult process of determining which rewards program suits their individual needs. Considering rewards devaluation in choosing a rewards program is thus nearly impossible. There are a couple of reasons why rewards devaluation occurs, and why it so significantly impacts the amount of unredeemed points:

  • Zero regulations. Currently, there aren’t any regulations involving how a company can devalue its rewards. Because of this, companies have full power to devalue rewards at any given time, without any warning or reason. Some companies do offer disclosed information, but such regulations are implemented solely for credit card companies. However, redemption information is disclosed incredibly unclearly, making reward devaluation difficult to track.
  • Financial health of the company. To reiterate: Companies invest in rewards programs because they increase economic revenue; consumers spend more money because they believe they are benefitting in the long run. Therefore, when companies fall upon times of economic hardship, they are more likely to increase the amount of redeemable points needed for consumers to receive a reward. The promise of a reward isn’t too costly, but actually giving a reward is. As such, to save money, companies will engage in the process of reward devaluation.

Can Rewards Devaluation be Avoided?

There are two primary methods to avoid rewards devaluation. The first is to simply not engage in rewards programs. This option isn’t optimal, because although reward devaluation can occur, there are many benefits involved in participating in a rewards program. For instance, many consumers do redeem points for rewards each year, and are very happy with their rewards. In addition, rewards programs also help consumers become more aware and more cautious of their spending habits. Still, removing oneself from rewards program eliminates the problem of rewards devaluation, but such a decision is not always ideal or feasible for many consumers.

The second method to avoid rewards devaluation is to limit your memberships solely to cash-based rewards programs.  Since cash cannot lose value, the money you earn while spending does not have the opportunity to devalue. Of course, many cash-based rewards programs are not as appealing as points- or miles-based rewards programs. Cash-based rewards programs tend to offer lower incentives, largely because cash-based rewards programs are considerably more costly for the company implementing the program. However, if you are concerned with rewards devaluation, limit current memberships and instead opt for cash-based rewards programs.

What are the Best Credit Cards to Avoid Devaluation?

Many credit card companies offer consumers the option to participate in rewards programs. Since cash-based rewards programs have the least risk of being subjected to rewards devaluation, seek out credit cards that are automatically tied to a cash-based rewards program. The following chart includes a short list of credit cards with cash-based rewards programs.

Card Name Issuing Company Rewards Qualifying Credit
Quicksilver Capital One 1.5% on all purchases Excellent
Journey for Students Capital One 1% on all purchases + 25% bonus on earned cash back Average
Various Discover 5% on all purchases in given quarterly categories Average-Excellent
Freedom Chase 1% on all purchases in given categories Average