Ronald Duben is ready to give up his credit card. He thinks there’s something better out there — and there almost certainly is.

Duben has been dutifully shelling out $120 a year for his co-branded airline rewards card, which promises he’ll get “free” flights if he spends enough money. It was a good deal at first. Once he collected about 60,000 points, he could cash his rewards for a flight to Asia.

But when Duben recently tried to redeem his loyalty points for an economy-class ticket to Japan, he was stunned to find that his airline had more than tripled the miles he had to pay. Then, on top of the 200,000 points, it asked him for another $375 in taxes and fees.

So much for “free.”

“I feel like I’m deeply involved in a rip-off,” says Duben, a retired chef from San Rafael, Calif., “and I want to get out.”

It turns out there is a way out.

Making a U-turn on rewards credit cards

Rewards credit cards- especially those high-fee, high-interest mileage-earning credit cards- are not for everyone. You’re probably just as likely to pay an absurdly high interest rate and add to that $1 trillion in credit card debt as you are to get a “free” airline ticket.

The government is also concerned about these cards. Earlier this month, the Consumer Financial Protection Bureau (CFPB) issued a report on rewards cards that identified multiple problems with these payment systems. Consumers complained that rewards are often devalued or denied even after they meet program terms. Consumers who carry revolving balances often pay more in interest and fees than they get back on rewards.

The CFPB and the Department of Transportation also held a hearing on rewards credit cards, a likely precursor to regulating these programs.

So, if this is the beginning of the end for rewards credit cards, then what’s next?

Here are the alternatives to award cards

Read a travel blog, Instagram account or newspaper travel section, and you might think the only way to travel is with one of those high-fee travel cards. But there are other ways to pay:

A debit card

A debit card or bank card deducts money directly from your bank account. No need to worry about spending more than you have because it usually won’t let you overdraw. “Debit cards are a straightforward option,” says a financial expert and frequent traveller, Shawn Plummer. “They’re widely accepted and eliminate the risk of accumulating debt because they only allow you to spend what you have.”

Many debit cards have travel benefits, such as no currency conversion fees, but there are limits: Car rental companies and hotels may not accept a debit card.

A no-annual-fee, low-interest-rate credit card 

You shouldn’t pay an annual fee for your credit card. And if you do a little research, you can find a card with less than a 10 percent annual interest rate. Hint: Check with a credit union. Many of these cards also have all the travel benefits you need, including car rentals and medical evacuation coverage – and no currency exchange fees.

By the way, if you want to pay a membership fee, try joining one of the warehouse clubs like Sam’s or Costco. Peter Hoagland, a consultant from Warrenton, Va., swears by his Costco Visa. He says it’s a no-nonsense payment system with relatively reasonable fees.

“I use the card everywhere,” says Hoagland.

Money transfer services

A service like Revolut or Wise allows you to transfer money to a company or individual, completely bypassing the credit card network. These companies are on the bleeding edge of digital banking. I visited Wise’s headquarters while I was in London recently and really loved its plan to remove “all the friction” between you and your money. That means eliminating many of the high fees you’ve been paying for years.

Andy Abramson, a communications consultant from Las Vegas, uses both and likes the transfer speed and favourable exchange rates when moving dollars to another currency.

“They’re both incredible,” he says.

What is the future of payment systems for travellers?

Are rewards credit cards obsolete? Have they become bloated and inefficient, with their high swipe fees, exorbitant interest rates and empty promises of free tickets? Some industry watchers believe the answer is yes.

Many travellers are switching to a debit card or a digital payment system as an intermediate step. That allows them to lower their interest rates and make smarter decisions about their purchases instead of mindlessly spending money to accumulate points or giving all of their loyalty to one airline.

Financial experts see a better future just ahead. It’s a place where digital peer-to-peer payment systems are used to transfer money at virtually no cost to you. In that future, cards are as antiquated as traveller’s checks. All transactions happen on the phone with a tap and a biometric “OK.” Loyalty programs have evolved into something more sophisticated than today’s bait-and-switch cards, which make you spend more.

Will the government regulate rewards credit cards?

After this month’s joint hearings with the CFPB and DOT, one thing is sure: Rewards credit cards will soon be regulated by the government.

Even if regulators don’t act, Congress could. A new bill called the Credit Card Competition Act could bring much-needed competition to credit cards. Notably, it would force networks to compete over fees and potentially reduce swipe fees for merchants. That might bring some sanity back to credit card rewards programs, benefiting consumers.

It’s about time. Rewards credit cards make promises they can’t keep, bait you into spending more than you should, and ultimately reward only the airlines and credit card companies that issue trillions of often worthless points. The sooner you find an alternative, the better.

Duben, the retired chef who wanted to visit Japan, did this. He clicked on the United Airlines website and booked a regular ticket. He’ll use his miles for another ticket and close his rewards credit card for good.

 

 

 

Written by: Christopher Elliott

 

Christopher Elliott is an author, consumer advocate, and journalist. He founded Elliott Advocacy, a nonprofit organization that helps solve consumer problems. He publishes Elliott Confidential, a travel newsletter, and the Elliott Report, a news site about customer service. If you need help with a consumer problem, you can reach him here or email him at chris@elliott.org.

 

 

 

 

 

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