If passed, President Donald Trump’s proposal to implement a temporary 10% cap on credit card interest rates could lead to significant shifts in how card issuers assess the value of credit card points. For individuals holding substantial credit card rewards, the advice from industry experts is to consider redeeming those points sooner rather than later.
Nick Ewen, senior editorial director at The Points Guy, emphasizes that accumulating points is not a strategy for long-term investment. He suggests consumers should already be spending their points, independent of any proposed interest rate changes.
Credit card points are earned through spending and can be redeemed for a variety of benefits, including travel, cash back, and merchandise. These rewards programs primarily rely on fees collected from merchants during transactions and sometimes from interest and fees paid by cardholders. Thus, a 10% interest rate cap could jeopardize issuers’ revenue, prompting possible adjustments to reward programs.
Ewen warns that to compensate for this potential loss of income, credit card issuers might lower the number of points earned per dollar spent, increase redemption costs, or reduce the perks associated with those points. However, predicting when the value of these points might diminish due to the proposed interest rate cap is fraught with uncertainty, given the complex nature of financial policies.
Ewen outlines two primary reasons for spending credit card points regularly:
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Policy Changes by Issuers: Credit card companies can alter their reward structures unexpectedly, and such changes rarely favor cardholders. Keeping points in limbo might lead to disappointing shifts in reward value, compelling users to utilize their points proactively.
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Inflation and Value Erosion: Unlike money deposited in savings or investment accounts that can accrue interest, credit card points do not appreciate over time. As inflation affects the pricing of goods and services, the effective purchasing power of stagnant points diminishes. Ewen cites an example: $100 in airline points remains $100 worth next year, regardless of price increases for flights. Thus, using points now can result in immediate savings and better financial flexibility.
The ideal number of points to retain varies from person to person. Ewen suggests that frequent travelers may benefit from saving more points for opportunities like last-minute flights while those who travel infrequently might consider spending points once they accumulate in the mid to upper five-figure range.
While it’s common to save point balances for significant events like honeymoons or special trips, individuals should keep in mind that flight prices fluctuate and it’s often possible to rebook at lower rates to recapture savings in points. Therefore, if someone can utilize points for a flight immediately, Ewen advises that it is a favorable option.
In light of potential changes in credit card reward systems and the overarching economic landscape, consumers are encouraged to regularly reassess their point balances and consider redeeming them strategically.
