Jordan Goodman is the author of Everyone's Money Book, available at 888-201-6300. This is the third edition of the book. You can also visit his Web site at www.moneyanswers.com. He talks with us on Thursday mornings.

May 9, 2002

"Notes on Frequent-Flier Credit Cards"

Host: Be honest -- how many of those frequent-flier credit cards do you have? A couple, probably. On this week's edition of "The Road To Riches," personal finance expert Jordan Goodman talks about why they may not be such a good idea -- even though it's tough to say no when the applications land on your doorstep.

More and more people are using credit cards on which they earn frequent-flier points, hotel rewards, cash-back rewards, and so on, because credit card marketers are pushing these reward programs so aggressively. The question is: Are these a good deal for consumers?

The Advantages of using these cards:
• You can accumulate hundreds, or thousands, of points and earn free trips, hotel stays, and rebates off major purchases, like cars.
• In some cases, the points can be used for many purposes, like American Express Membership rewards which can be used for airlines, cruises, hotels and shopping.

The Disadvantages of using these cards:
• They all charge annual fees from $20 to $300, which you can avoid with many no-fee annual cards.
• It can be a very expensive way to buy a trip. If you need 20,000 points for an airline trip, that means you might have to spend $20,000 for a trip that would cost $500. Many points also can't be used during blackout periods -- when you most want to use them.
• You can be tempted to spend more than you should because you will earn frequent-flier points. People put large purchases, like college tuitions, on these cards to be able to earn points.
• If you don't pay the balance off in full, you will pay high interest. Frequent-flier cards typically charge 18 percent to 19 percent and won’t bring it down because they know you can't go elsewhere to get the miles.

A survey was just released by the Cambridge Consumer Credit Index which found out some interesting facts about frequent-flier card users:
• Only 24 percent of Americans are swayed by the lure of getting frequent-flier points when they decide if they will charge something, or pay cash. However, the higher a person’s income, the more they are tempted because they have a better chance of getting a free trip. So 41 percent of those earning over $75,000 are heavily influenced by frequent flier points when they make these decisions.
• And 63 percent of consumers don’t even have credit cards offering frequent-flier points or other rewards.

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