December 8, 2022

How Credit Card Rewards Devaluations Can Eat Into Your Rewards

Don’t lose out on value because you didn’t use your points. To collectors of credit…

How Credit Card Rewards Devaluations Can Eat Into Your Rewards

Don’t lose out on value because you didn’t use your points.

To collectors of credit card rewards, few things are as satisfying as seeing a hefty balance of points or miles. Knowing you could be just a few clicks away from a free trip is a thrill that’s launched many a cardholder’s quest for big credit card sign-up bonuses.

But it’s not all sunshine and umbrella drinks. A lot of planning — and, yes, math — goes into building a dream vacation out of credit card rewards. Let’s face it, finding award space on in-demand flights or at popular hotels can be a challenge at the best of times.

And the difficulty level goes up exponentially when issuers and travel programs start arbitrarily increasing the cost of redemption awards. Known as devaluation, it’s a constant issue that can reduce a once-valuable rewards stash from “trip of a lifetime” to “backyard staycation.”

It’s like inflation for points and miles

You can think of rewards devaluations kind of like the inflation we see in the regular economy. If a carton of eggs was $1 a decade ago but costs $3 now, your money won’t go nearly as far at the grocery store as it once did.

Basically, credit card rewards can be devalued any time the issuer or travel partner increases the amount of rewards you need to redeem for a specific award. For example, if a specific flight used to cost 30,000 miles but now costs 35,000 miles, those miles have been devalued.

You’re most likely to see this happen when hotels and airlines change up their award options. However, it could happen on the issuer’s end, as well, particularly for travel credit cards with transferable currencies. If Chase decreased the transfer rate for Ultimate Rewards to their travel partners, for instance, that would devalue your points.

Rewards can be devalued for any number of reasons, though it tends to boil down to profit. The harder they make it to redeem your rewards, the less likely you are to do so — which saves the company money. Alternatively, if an airline seat or hotel room is occupied by someone paying with rewards, that product can’t be sold to someone paying cash, and the company has to reckon with the opportunity cost.

Tips to avoid losing out on rewards value

Unfortunately, any credit card rewards program can be subject to devaluation. What’s more, you may not receive any kind of notice ahead of time, leaving your rewards to lose value behind your back.

That said, there are a few things you can do to minimize the potential damage. For one thing, don’t leave your rewards sitting around to collect dust. Try to use your rewards regularly. This will help keep you from losing significant value to a change in award costs.

Another thing that can help you from having idle rewards is to be strategic about earning them in the first place. When you can, focus on earning rewards for which you have a specific use already in mind.

Along that same vein, don’t transfer your points until you’re ready to use them. The majority of devaluations happen with the hotel or airline program. Once you’ve transferred your points, you can’t untransfer them, so you’ll be stuck trying to use points that have been devalued. Transfers typically only take a day or two — some are even instant — so there’s no reason to transfer your rewards until you’re ready for them.

Of course, if you’re really keen on avoiding devaluation, you can always stick to cash back credit cards. It’s exceptionally rare for cash back cards to devalue, as most of these programs simply have a flat redemption rate that never varies. This strategy has the added benefit of being much simpler, as you won’t need to do any research or calculations to find the best way to maximize your redemptions.

Use ’em or lose ’em — to devaluation

No matter how many rewards you earn, they’re only as valuable as what you can get for them. And that value can change at any moment if the issuer or travel program decides to make awards more expensive. While devaluations aren’t an everyday occurrence, they do happen regularly, so it’s important to stay on top of your credit card rewards.