Making the Most of Rewards Credit Cards

While there are some folks who just prefer to avoid credit cards altogether, I am one of those who feel that — when used responsibly — credit cards can be a great financial tool. If you sign up for a credit cards rewards program, you can actual get perks and free items. But you have to be careful not to let your desire for rewards overcome your common sense. In many cases, rewards credit cards are used “for the points,” but without any sort of control or accounting. It is easy to use credit cards, and with the added incentive of rewards, it can be too easy to get in over one’s head with debt.

Using rewards credit cards to your advantage

If you are smart about it, you can use rewards credit cards to get free airline tickets, merchandise and even cash. It is important to keep these rule in mind when using rewards credit cards:

1. Don’t buy things you can’t afford. Only purchase items you already have the money for in your checking account. I have a friend who uses her credit card, but deducts the money from her checking account ledger. At the end of the month, she writes a check for the credit card balance, and the money is sure to be there.
2. Pay off your credit card balance every month. This is good advice anyway — it keeps you from becoming overwhelmed with debt. Interest charges can destroy the value of rewards. If you are earning 5% cash back from an exceptionally generous program, but paying 14.99% interest, you are still paying more than you are getting, and your reward is useless.
3. Don’t buy things just to get the points. There’s a difference between buying what you would buy anyway and using your credit card for the points and buying something just to get points. Only purchase things you would buy in the first place. It will help you better observe rules #1 and #2.
4. Be aware of your rewards credit cards and their terms. Know which cards offer more when you get gas and groceries. Keep an eye out for programs that award you double points at certain merchants. And know about things like blackout dates and other rewards restrictions. Choose rewards programs that work for your lifestyle, and rewards cards that award you more points for the things you buy most on a regular basis.

If you don’t have the discipline to wisely use rewards credit cards, then it is best to just use your debit card or cash. You want to maximize your free items, not get deeper into debt.

image source: selvin via Flickr