5 no-nonsense tips for reward credit cards

November 12, 2010

By Barbara Marquand | Money Rates Columnist

A credit card that lets you earn rewards can be a great deal if you choose the right card and use it well. Here are five tips for making best rewards credit card 2012 work for you:

1. Pay your credit card bill in full every month

Reward credit cards tend to have higher interest rates than non-reward cards, the FDIC says. If you know you're going to carry a balance, look for a low rate credit card instead. Otherwise, the higher interest rate on a reward account can offset any rewards you earn. Use your lowest rate card to carry debt and reward cards for expenses you pay off each month.

2. Get a cash-back credit card

Rewards programs have multiplied so that now you can earn points toward everything from contributions for charities to merchandise at Hooters restaurants, but cash is always a safe bet when it comes to credit card rewards.

You never have to worry about whether you can use cash, nor do you have to worry about blackout dates or other restrictions. Consumer Reports, for instance, advised against most airline reward programs last year because of the sticky rules involved and the shaky conditions of the airlines. After all, how do you use miles for an airline now underwater?

3. Watch for rolling rewards

A variety of credit cards now feature rolling rewards programs, which change every month or so and offer extra points or cash back on certain types of merchandise. You might earn extra cash back on hotels during one season and home improvement items the next. Read your credit card cash rebates statements carefully to understand how these programs work, and, if it makes sense for your budget, time planned purchases to get the most bang for your buck.

4. Don't go reward crazy

But don't rack up rewards at the expense of your bottom line. It only makes sense to charge a lot of your purchases on a cash-back card if those were things you needed to buy anyway. Track your spending closely and use cash on normal purchases such as weekly grocery runs if you find that using credit tempts you to spend more.

5. Pay your credit card bill on time

Typically you forfeit rewards if you pay your credit card bill late. Although credit card companies can't hike the interest rate on existing balances unless you're 60 days late on payments, they can dock your rewards points even if you pay a day or two late.

Compare reward credit cards online to find the best deal. Look for a card that delivers the best rewards for your spending and comes with no annual fee.

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