How to use rewards credit cards

Have you been thinking about getting a rewards credit card? These cards advertise big credit card deals and rewards in the form of free plane tickets, vacation packages, consumer goods and cash incentives. But do they deliver on their promises?

They can if you use them correctly. Before you decide to sign up for a rewards card, understand the system and know if it's right for you. Most rewards cardholders never see a benefit. To get the full value from your card, you need to become a savvy user.

The rewards credit card system

The basic idea behind a rewards card is a points system that awards you points for money you spend with your card. Most cards reward one point to one dollar. If you spend $10, you get 10 points.

There are exceptions to every rule, though, and that's where these things get tricky. The credit card issuer wants to lure your business, so each rewards program has special deals. Many offer double points on travel-related expenses. So if you buy a $100 plane ticket, you'd get 200 points, instead of the 100 points you'd earn if you spent that same money on your card at the grocery store.

What are your points worth?

The most confusing thing about the system is that points aren't always created equal among different cards. Not all points will earn the same amount of goods, and not all points accumulate at the same rate either. However, when you compare the amount you must spend to get a certain benefit from card to card, you'll sometimes find that the differences in earning speed and point value effectively cancel each other out.

To make matters more confusing, there is a marketplace for points. You can buy points with cold hard cash, and at Points.com you can swap points from one company to another, as long as both participate in the program.

Is a rewards card right for you?

As a person who only recently paid off my credit card debt, I'm loathe to run up the balance again by using it for everyday purchases. I understand the principle, but I worry that in practice I'd slip back into debt.

If you know you can use credit responsibly, though, a rewards card can be a boon. You'll want to set all your regular bills and expenses to be paid through it, and use it for your day-to-day spending.

Be sure to pay off the whole balance every month though; rewards cards often come with high interest rates!

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