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Do Loyalty Programs Pay?

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Spending to save.

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Many people overlook the unstated goal of customer loyalty plans: to get you to spend more.

The data gathered from your membership can be sliced by age, sex, race, ZIP Code – you name it – to give retailers a better idea of who their customers are and how to reach them.

That's a polite way of saying businesses track your spending patterns to learn how to separate you from more of your money. Remember: customer loyalty programs are marketing tools and any savings you receive are likely to be small and are viewed as part of the cost of doing business.

Surprisingly, some people believe they can save by spending more. That may work when the law of gravity is repealed, but in the meantime you can save by drafting a household budget and sticking to it.

Customer loyalty programs make sense only if used properly. Don't overspend and don't buy things you'd normally leave on the shelf. Never let the desire to add points to your account keep you from a competitor's better price. Cross the street to save five cents a gallon on gas rather than adding a handful of credits to your account.

Switch supermarkets if one offers consistently better prices or quality. In short, a lower price immediately puts money in your pocket and that beats future, and often illusionary, savings promised by a customer loyalty program.

For security reasons, be wary of sharing personal information with a retailer. You should always closely guard your financial information, including all account numbers. Never give your date of birth and Social Security Number to any merchant because you don't know anything about the store's security.

Basic information is all an identity thief needs to open fraudulent accounts in your name. In most cases, avoid giving your address and phone number to a merchant. If nothing else, you don't want to receive more junk mail, spam and telemarketing calls. Many major retailers offer online coupons that you can print as needed.

But rising prices, especially food and gasoline, make loyalty programs attractive to many shoppers. The programs include rewards, future discounts, points and manufacturer rebates. Here are some variations on the theme that are worth a look:

Some clothing retailers notify regular customers of sales pegged to birthdays, holidays, and end-of-season clearances. This isn't vital because sales are routinely advertised, but if you plan to buy anyway, grab the discount.

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If you regularly shop at Starbucks (SBUX) or buy fast food such as Domino's Pizza (DPZ), a store discount card can save you money. Many supermarkets such as Kroger (KR) and Safeway (SWY) offer store discount cards that offer a small discount on selected items at checkout.

Most major airlines, including Jet Blue (JBLU), United (UAUA) and American Airlines (AMR) offer frequent flier miles, the granddaddy of contemporary customer loyalty programs. The programs make sense if you travel frequently. If not, select your airline on price and don't worry about accumulating miles.

Check the interest rate on points-associated credit cards offered by an airline or other company because they often come with a higher interest rate than some bank-issued cards. Sometimes they have annual fees.

If you have a no-fee credit card such as a Visa (V) linked to Hilton Hotels, you can save money on customer loyalty programs if – and only if – you pay the balance in full each month. At 20% or so, the interest rate on an unpaid balance will quickly eat up any savings.

If you put all routine household purchases on a credit card, you may be able earn points at grocery stores, restaurants, gas stations, drug stores, cell phone service and even the Post Office. You'll probably rack up a lot of points quickly and if you're diligent, this will help you track expenses while piling up chits for a free hotel room. But one late payment kills your gains.

Upromise can help parents save for their children's education, but returns are low and it should be viewed as an adjunct to regular contributions to an existing 529 College Savings Plan – not as the main source of funds.

Upromise is a free service that allows members to earn rebates of one percent to 25% on qualified purchases from major companies, including Amazon.com (AMZN), AT&T (T), Avis (CAR), Exxon Mobil (XOM), Bed Bath & Beyond (BBBY), Coca-Cola (KO), Eddie Bauer (EBHI) J.C. Penney (JCP) and McDonald's (MCD).

You must participate in a state-sponsored college savings plan through an investment company approved by Upromise. You then register your credit, debit and grocery store cards with Upromise. A credit card that earns frequent flier miles also may contribute to future tuition, but not all purchases at stores you patronize qualify for the rebate.

Upromise makes sense only if you'd purchase the items anyway and if you pay your credit card balance in full each month. The rebates will be small and it often takes months for your account to be credited.

The small gains and slow pace discourages many participants from sticking with the program long enough to make a significant contribution to their college savings plan. The slow pace also means you must continue to make regular contributions to the 529 Plan because many require a minimum monthly contribution.

Read Upromise's terms closely because there are conditions, exclusions and limitations. Make it an add-on to your college savings program – nothing more.

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