Your loyalty program isn't saving you money, and it's your fault.

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I’ve never liked the term “loyalty program,” because I’m not sure who’s being loyal to whom.

The concept of these programs is simple: The more you spend on a credit card, the more that card gives you points. These “reward points” can be redeemed for cash, gifts, or airline miles.

Of course, no successful business gives away something for nothing — and credit card companies are among the most profitable in the nation. They know from experience that most of their customers will run up big monthly balances, and the accompanying interest and fees will far eclipse any points they dole out.

That’s why I wrote in my second book Power Up, “Learning to live without a credit card is an integral part of financial empowerment. Those who don’t use credit cards take money much more seriously than credit card users.”

That was a controversial statement, and I received criticism from those who said, “But you can earn free money just from using your credit card!” That’s certainly true, but the sad fact is: Most Americans pay much more than they make.

Now the news is even worse.

Here’s the headline from a new study: “Customers Sitting on $100 Billion of Unredeemed Loyalty Points.”

Yes, that’s 1,000,000,000. That’s more than all the credit card debt in the country.

Compiled by a marketing firm called Bond Brand Loyalty, this 21-page report contains all sort of depressing news — for consumers. For those offering loyalty programs, it’s good news.

For one thing, 100 billion unused points means those companies can earn their own interest off the dollar those points would cost them — while still earning interest off you.

Yet 81 percent of the 28,000 loyalty program members surveyed said those programs “make them more likely to continue doing business 81 percent with brands. “In addition,” 66 percent modify spend to “maximize loyalty benefits.”

Let me translate that for you: Acquiring points not only keeps customers coming back, it makes them buy more. That would be fine, and I’d actually recommend this approach if not for this: The report also says 34 percent of those in loyalty programs “do not have a redemption goal. In other words, they do not have an intended use for their accumulating points.”

That explains why so many Americans are sitting on their points. They have no plan for them. I wouldn’t be surprised if many viewed them as a virtual savings account, which they can use at any time for holiday gifts or unplanned vacations. There’s a big problem with that, however.

Unlike a savings account in a bank, which is FDIC insured, your reward points aren’t guaranteed. For example, if you close your account, your rewards rarely transfer to a new credit card. (This is where the term “loyalty” cuts both ways.)

Also, any company with a loyalty program — not just credit cards, although they represent the majority of such programs — can change the rules at any time. For instance, car maker Hyundai even has a web page that spells it out: “Hyundai Motor America also has the right to change the rules at their discretion.”

My advice..

  • If you’re collecting points, have a plan. Spend them in whatever way garners the most return. Sometimes, that’s cash back. Other times, it’s in airline miles.
  • If you find a credit card with a better deal, spend all your points and make the switch. With so many credit cards out there these days, you can find one that suits your particular needs. Be loyal to your own financial goals.
  • Whatever you do, don’t focus on the points if you’re running up a monthly balance. You’re losing money, and quite literally, there’s no point in doing that.
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About the Author

Howard Dvorkin, CPA

Howard Dvorkin, CPA

I’m a certified public accountant who has authored two books on getting out of debt, Credit Hell and Power Up, and I am one of the personal finance experts for I have focused my professional endeavors in the consumer finance, technology, media and real estate industries creating not only, but also Financial Apps and Start Fresh Today, among others. My personal finance advice has been included in countless articles, and has appeared in the New York Times, the Washington Post, Forbes and Entrepreneur as well as virtually every national and local newspaper in the country. Everyone should have a reason for living that’s bigger than themselves, and besides my family, mine is this: Teaching Americans how to live happily within their means. To me, money is not the root of all evil. Poor money management is. Money cannot buy happiness, but going into debt always buys misery. That’s why I launched I’m glad you’re here.

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