The Keys to Getting the Best Reward Credit Card for You

Most of you know that I'm a big fan of the Blue Cash from American Express card (it earned me almost $500 last year) and use it as my main cash back credit card. But there are a lot of reward cards out there and I thought some of you might like to have some guidelines on how to find the best one for you. Here are my thoughts on the issue:

1. Decide what is most important to you. Everyone's different. Some people like cash (like me), others travel a lot and want airline points, and others have special interests in one area or another. This GREATLY impacts what reward credit card will be the best for you. So start the process of searching for your card by thinking through what reward you'd like to get.

2. Consider how you spend money. What you charge on your card can make a big difference in the reward you get. For instance, some cards give bigger rewards for spending at gas stations or grocery stores. If you charge very little at gas stations or grocery stores, it's likely these cards aren't for you. Review your budget or Quicken file and take note of the major purchases you charge to your current card.

3. Decide how much time and effort you're willing to put into maximizing your reward. It's highly likely that your absolute maximum reward will come from using a strategy that requires using multiple cards. But do you really want to deal with the hassle of getting, carrying and using a boatload of cards? Personally, I don't, so I carry two -- a main card and a back-up used in certain situations. You may be willing to deal with the hassle of using many cards, but you certainly need to consider the "hassle factor" before you decide on your strategy.

4. Be sure to minimize fees. In almost all cases, your best reward card will have no annual fee. There are exceptions, but if you have to pay for a card, you have to have some really, really, really great benefits from it to make it the best reward card for you.

5. Pay off the card each month. This should go without saying, but if you get a card and carry any sort of balance, it can quickly wipe out any rewards you earn. It's usually better not to have a card and forfeit the rewards than to use the card and carry a balance.

6. Consider where the card can be used. Some cards are accepted in more places than others. Visa and MasterCard can be used almost everywhere and American Express is used in most places (including Costco -- the only card they take), but others (Discover for instance) are accepted in far fewer locations.

7. Think of the ease of redemption. How you get your rewards can make a big difference. Some companies make the process seamless and simple (for instance, my card simply credits my account for the reward amount once a year) while others seem to be designed to make it difficult to get your reward (you earn "points" and have to go through 10 steps to actually redeem them.) No matter how much you earn, if it's a hassle (or impossible!) to get the reward, it just may not be worth the effort.

8. Charge all you can on the card. Once you have the above figured out and decide which card or cards are best for you, make the most of it (them) by charging all you can. Look at all your big purchases and see if there's a way to put them on your card. Look at regular, on-going purchases and see if you can pay these (with no cost) via credit card. Especially look at all those purchases that give you extra rewards (such as the gas and grocery store extras noted above) and be certain to get as many of those charged as possible.

Are rewards credit cards a good bargain or just another bad debt?

We've all heard the pitches. Rewards credit cards can offer big discounts on purchases of everything from new automobiles to appliances to vacation travel packages. However, these credit cards often carry higher interest rates and restrictions on their use. Let members of the Financial Planning Association of Greater Indiana help you sort out the details. Visit the group's Web site at www.fpagrindiana.org.

Bonnie Struck, Worley Financial Group

They can save you a lot of money, but only if used correctly. These cards are intended to reward frequent shoppers and travelers. Every time you use the card, you earn points or miles that can be redeemed for cash, products or discounts on future purchases.

Is this too good to be true? Well, it can be.

Do the research and read the terms before selecting any credit card. For example, do the points expire at the end of the year, or can they be carried forward? Do I have to pay an annual fee? How many points or miles do I earn for every dollar spent? Spending more may not mean big savings.

If you carry a balance from month to month, it can be costly when using any credit card and more so when using a rewards card. Typically, rewards credit cards have a higher interest rate than regular credit cards. In addition, missing a payment will result in a penalty, and the card company may even raise your rate. A good practice is to make your payments on time and never miss a payment.

Ask yourself, "Am I using my rewards card just to earn points or miles, or do I really need this purchase?" If you are just spending money indiscriminately, then are you really saving money?

Leb Woods, UBS Financial Services

In the right hands, any credit card can be a useful financial tool, and in the wrong ones, it can spell disaster.

Self-discipline is the key here. So if you're the type who tends to spend it now and earn it later, a rewards credit card, more specifically, a revolving balance card where you're required to make only a minimum monthly payment, is not for you. Rather, you should consider using a credit card that requires you to pay the balance in full at the end of each month, thereby avoiding the temptation to make only the minimum payment and maintain a balance on which you have to pay interest.

That said, those who prudently use credit cards should consider the benefits of rewards cards. Generally, these cards promise the user some form of benefit (cash back, merchandise, travel, etc.) based on the dollar amount charged on the card. Since these rewards have become such an important part of credit-card marketing, there are literally hundreds of cards with a huge variety of rewards tailored to specific tastes.

If you're shopping for a rewards card, be aware of the pitfalls. These include reward limits, blackout dates for travel, high annual fees, and other conditions in the fine print of the cardholder agreement.

To find online comparisons of the multitude of credit-card offers available, consumers can visit www.creditcards.com or other sites.

Brent Walker, RJP Investment Advisors

My advice is similar to what I often hear about a good diet -- everything in moderation.

Credit cards are an excellent way to organize and simplify paying your monthly expenses, and rewards cards are a great way to earn cash, points, airline miles, etc. The problem is that credit-card lenders are so prevalent and so willing to advance you more credit that it is very easy to fall into a downward spiral of debt.

The only way a credit card is a good deal for you is if you do not carry a balance. Sure, you can get zero-percent financing for a short period of time, but sooner or later, the low rates end and you have to pay. If you carry a balance, forget about the rewards and aggressively pay those debts off.

If you can pay off the balance each month, reward cards are a great way to manage your monthly finances. Although banks will tell you that debit cards are just as safe as credit cards, I prefer the credit-card approach because you are not outlaying any money until you have reviewed the activity and pay the bill at the end of the month.

Pick a card that does not carry an annual fee, or if you have a reward card already, talk to the company about waiving this expense. A good source for reward information is www.creditcards.com.

• Securities offered through Cambridge Investment Research, member NASD/SIPC. Investment advisory services offered through Worley Financial Group, a registered investment adviser. Cambridge and Worley are not affiliated.
• Leb Woods is a certified financial planner.
• Brent Walker is a certified financial planner.