using rewards as payment

[abcdefghijklmnopqrstuvwxy]

how come terms of many credit cards state something along the lines that rewards can't be considered payment? Like if i have a statement balance of $50 and i redeem $50 worth of rewards, it won't be considered payment and i'll still be charged interest. why do credit card companies do this?

[Anonymous]

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@abcdefghijklmnopqrstuvwxy wrote:

how come terms of many credit cards state something along the lines that rewards can't be considered payment? Like if i have a statement balance of $50 and i redeem $50 worth of rewards, it won't be considered payment and i'll still be charged interest. why do credit card companies do this?

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It's usually not considered minimum payment but is certainly payment.    But a very good question!  Of all the concerns of waiting X days for checks from other institutions to clear etc, redeeming rewards should be the most certain form of payment!   So perhaps a variation of "Because they can"?

[coldfusion]

It could get complicated fast with senarios where a critical mass of the rewards earned/applied against the mininum balance got clawed back due to items(s) being returned such that a) there aren't enough unspent rewards left to cover the clawback and b) the clawback was large enough such that the remaining rewards aren't enough to meet the mininum payment requirement.   If they take the position that regular payments must be used to meet the mininum payment requirement but rewards can be used for everything else they at least in theory would get to minimize internal administrative headaches and bad PR due to applying late payment penalties.

[Brian_Earl_Spilner]

I don't know but Amex says it can't be applied towards the minimum payment even though it did. 

[SouthJamaica]

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@abcdefghijklmnopqrstuvwxy wrote:

how come terms of many credit cards state something along the lines that rewards can't be considered payment? Like if i have a statement balance of $50 and i redeem $50 worth of rewards, it won't be considered payment and i'll still be charged interest. why do credit card companies do this?

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A statement credit from rewards counts as a payment; it just doesn't count towards the minimum payment, which must be paid in money. As to why that is, I have no idea, except I have a hunch that it's probably a regulatory thing.

[pizzadude]

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@abcdefghijklmnopqrstuvwxy wrote:

how come terms of many credit cards state something along the lines that rewards can't be considered payment? Like if i have a statement balance of $50 and i redeem $50 worth of rewards, it won't be considered payment and i'll still be charged interest. why do credit card companies do this?

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I think this may also have to do with companies internal accounting processes, i.e. moving from a future liability into a payment ( revenue? ) account. 

[dlister70]

I've had enough rewards to pay the statement balance before, but because of that wording, I got nervous and sent in a payment too.  In your example, the statement was $50, I redeemed $50 in rewards, but I also made a payment of $50 bringing me to -$50.

I was afraid that they'd somehow charge me interest or charge me with a late payment since I didn't pay the minimum since the rewards didn't count towards the minimum.  Even though that doesn't make sense, I figured that if there was some way to screw me, they'd have done it.  

If possible, I try to redeem the rewards to a checking account and then make the payment from that account.  Same premise with an extra step.

[IsFiveCardsEnough]

Reducing your balance via credits, or rewards doesn't count toward your minimum payment, but it can reduce it, even to zero.  Let's say you have a $150 statement balance and a $25 minimum payment.  If you redeem $140 in rewards toward a statement credit, you'll end up with a $10 remaining balance and your minimum payment would also decrease to $10.

If instead, you were to redeem rewards toward your entire $150 balance, bringing it to zero, your minimum payment would also decrease to zero, making it no longer due.

A good rule of thumb is if you're going to redeem rewards, do it well ahead of the due date, so if you still have a minimum payment due, or a statement balance you want to pay off afterward, you can still do it before the due date.  I wouldn't rely on a reward credit to replace a payment, though you could if you can redeem enough to cover the entire balance.

Also if you're paying interest on the balance, watch out for that too.  The reward credit may count toward the interest charges first, resulting in not crediting the entire balance, and leaving a minimum due.  If you're making revolving payments, even toward a 0% balance, you will have to make the minimum payment as the rewards credit will reduce your balance but not your payment amount.

[IcyCool7227]

I'd like to add that there are credit card companies like First Bank & Trust who has the Mercury credit cards that offer a Pay My Bill option that woukd go towards the minimum amount due. Of course that would only work once the new statement comes out and you have a minimum payment showing.