How to use rewards credit cards

By Jim Sloan

I never really paid much attention to the rewards programs offered by different credit card companies. I was raised to use best rewards credit card only for emergencies and not for everyday use, so my sole criteria for getting a card was that the interest rate be as low as possible.

But then a friend of mine told me he was planning a trip to China, and was going to pay for his plane ticket through the rewards he was earning on his credit card.

"I'm paying for everything with my card," he said. "All my monthly bills - the rent, the groceries, the phone bill, everything. Then at the end of the month, I just write a check to the credit card company instead of eight or 10 checks to all these other places."

And it worked. After several months, my friend and his wife were able to get the tickets for next to nothing--all thanks to the judicious use of their credit card.

The fine print of rewards cards

Even if you're not planning a trip to China, this approach can work for anyone, provided you keep a few things in mind as you decide which rewards credit card programs works best for you:

• Rewards cards usually carry higher interest rates than non-rewards cards. That means if you're not paying off the balance every month, your interest payments will quickly exceed your rewards.
• Look for rewards that you'll use. The points you earn aren't as valuable if you have to buy stuff you don't use, or can't get cash rewards.
• Consider getting a card that offers cash back instead of points; according to the Federal Deposit Insurance Corporation, cash-back cards tend to be more generous with rewards.
• Check to see if the card you're considering has an annual fee. Will you earn enough points to just the annual cost of the card? According to the FDIC, some credit cards with rewards don't carry annual fees but some do.
• Avoid unnecessary spending. You might be tempted to buy something you don't really need just because you're on this mission to earn points. Don't let points accumulation cloud your good judgment and convince you to buy something you don't need.
• Read the requirements closely. Find out if there is an expiration date for your points, and check to see if you will be charged transaction fees that could wipe out your savings from rewards.

Rewards cards: options and hazards

There are a dizzying variety of cards available out there, increasing the chances that you'll find a card that fits your needs or spending habits. For instance, some cards will put money into a retirement account every time you accumulate a certain number of points. Another provides discounts on travel when it's booked on the website Travelocity. You can also get tickets to Disney attractions or passes to the NFL Draft event.

It also pays to assess just how much you have to spend to achieve your rewards goals. For instance, with one card that rewards two miles of travel for every dollar you spend, you might have to charge $30,000 to get a $400 ticket. You can do it, but it might take more time than you have.

While shopping for rewards cards, it's important to realize that you can also damage your credit rating by applying for too many lines of credit, so try not to get more than two. And keep in mind that some offers are only introductory, lasting over for the first six months you have the card.

How to find a rewards card that fits your lifestyle

There are a number of card-comparison websites, that can help you pick which reward card is right for you. For example on CardRatings.com, they typically ask what kind of rewards you are interested in, how much you spend each month and whether you pay off your balance each month. Then they provide a listing of cards, displaying what kind of credit score you'll need, a brief description of the perks you could qualify for, and a link to help you apply for the card.

Also, check out our own list of the best rewards credit cards if you're looking for great cards to start out with.