Check for best fit as credit card issuers squeeze rewards programs

Dear Liz: Could you please write about the way credit card companies are trashing their frequent flier programs? I have plenty of points from vendors but now find them worthless.

Answer: Credit card rewards programs usually get watered down over time, but that trend seems to be accelerating as card issuers look for new ways to contain costs and boost profits.

Typically, a card issuer will announce a generous new program and eventually tweak the rules to make miles, points or rebates harder to earn. At the same time, an affiliated airline -- reacting in part to all the frequent flier miles being earned by the credit card customers -- will increase the number of miles needed for a free flight or limit the number of free seats, making it harder to cash in rewards.

As issuers face high default rates and limits on their ability to raise interest rates, some are responding by weakening their rewards programs, raising annual fees or adding new fees, credit card experts say.

That makes it a good time to review your credit card programs to see whether they’re a good match for how you earn and use rewards.

Plenty of people do manage to fly for free using these programs, but they tend to work best for people who either charge a lot (so they quickly earn rewards) or people who fly a lot, since elite frequent fliers, or those who travel more than 25,000 miles a year with a single airline, usually have an easier time redeeming rewards.

You may be able to make rewards worthwhile simply by concentrating your flying with a single airline and its partners. Having miles scattered in a bunch of different programs makes it harder to earn free flights and makes you a less-valuable customer to any one airline.

In some cases, you can transfer miles between programs: WebFlyer has a mileage converter on its site that can show you possible routes for getting miles from one program to another.

Or it could be that you’re better off looking for a credit card program that offers different rewards. Cards affiliated with hotel chains are a popular choice, since the rewards tend to be easier to use. Or you could opt for a simple cash-back card and buy your own airline tickets with the proceeds.

Tapping 401(k) is rarely advisable

Dear Liz: In your column in our Sunday paper, you gave advice with which I strongly disagree. The question to you was whether to pay off a $50,000 credit card debt from retirement funds of $250,000. I found your advice not to use this money, citing tax penalties, loss of retirement income, etc., to be irresponsible. Do you consider encouraging bankruptcy to be ethical financial advice? Once again, another unwise borrower does not have to be accountable and is shown the easy way out. Many people have had to tap their 401(k)s before retirement for various reasons. The money is owed, the borrower has the means to pay it, so he should pay it.

Answer: Why do you think premature withdrawals from retirement funds are so heavily penalized? And why do you suppose retirement funds are protected from creditors in Bankruptcy Court?

It’s because lawmakers have decided that there are some things worse than reneging on your debts, and one of them is an impoverished old age.

Yes, if you take on a debt, you should do your utmost to pay it back out of your current income. If you need to sell otherwise-unprotected assets to do so, then do so.

But tapping retirement funds prematurely is rarely smart, and it’s particularly unwise if there’s a possibility that you’ll wind up in Bankruptcy Court. Advising people of that fact is a long way from encouraging them to file for bankruptcy.

By the way, few people who have been through it would call bankruptcy an “easy way out.” Many people struggle with the decision, put off filing for too long and drain the very resources that could have been protected, only to end up having to throw in the towel anyway.

Liz Pulliam Weston is the author of the book “Your Credit Score: Your Money and What’s at Stake.” Questions for possible inclusion in her column may be sent to 12400 Ventura Blvd., No. 238, Studio City, CA 91604, or via the “Contact Liz” form at www.asklizweston.com. Distributed by No More Red Inc.