How to Make the Most of Your Credit Card Rewards

As long as you don't have credit card debt, it's possible for your credit cards to work for you instead of you working for them. In other words, get a card that rewards you for using it. And then use it for everything you possibly can!

This is good advice as long as you're confident you are never again going to carry a balance. Rewards cards typically come with higher interest rates and membership fees, so carrying a balance would be unwise.

But it would also be unwise to pass over the free benefits these programs offer. Since all you have to do is sign up and then spend money as you normally would, it's a no brainer. Use and abuse credit card rewards programs and you will SAVE BIG.

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What Can Your Credit Card Do for You?

Pleasure Points

When credit card companies award you points you can use toward travel, shopping and so on, I call those "Pleasure Points" to distinguish them from Cash Back Cards, which I'll discuss next week. The key to making money while spending money is to get a credit card with Pleasure Points you will actually use. My husband used to have a card that earned him points toward a certain brand of car. Problem was, he didn't really want that type of car.

When we got married, I persuaded him to switch to two credit cards that offer fabulous frequent flyer benefits. We were young, hip travelers at the time. Ah, memories… We flew to Europe, Thailand, Chile and Australia using our credit card Pleasure Points.

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It was a tremendous deal even though our main rewards card charged a $50 annual fee at the time. Take that Australia trip. We flew business class – woo hoo!— and the two tickets would have cost a fortune if we'd paid cash. Instead, we spent about five years saving up rewards points. Let's crunch the numbers real quick to see how we did:

Trip to Australia
Cash price for 2 tickets: $16,000
5 years of annual fees: $250
BIG SAVINGS= $15,750

Gosh, that looks like such a coup now that I see it written down! Just $250 for two business class tickets to Australia! We had a wonderful time. It was a dream trip we couldn't have justified at the time without credit card Pleasure Points.

Choose a Flexible Program

If you're going to go for a credit card that offers "Pleasure Points," then make sure the program you choose is ultra-flexible. For example, one of my programs allows me to combine my credit card points with several different airlines' frequent-flyer miles. I don't like credit cards that give you rewards on a single airline, because I worry the airline won't have flights to my desired destination or, worse yet, will go under.

My other rewards program lets me buy any airline ticket on any airline as long as I have enough points and it's in the agreed-upon price range. I just pay for it with the credit card in question, alert the card company, and they reimburse me. That way there's no muss or fuss about blackout dates or anything like that. It's not actually a frequent-flyer ticket. The credit card company treats me to a regular ticket.

One other secret: to get the most out of rewards cards, it's best to only have one or two credit cards, because otherwise your rewards are spread out over too many cards and you don' t build up enough truly to benefit.

When you're choosing a rewards card, another thing to note is which type of benefit has the most cash value. For example, credit card companies are often more generous with travel points than shopping points. My credit card company charges 55,000 points for an airline ticket to Hong Kong, which has a cash value of $5,000. It would charge a lot more -- 56,132 points-- for a ten-megapixel digital camera, even though it's only worth $280!

The main disadvantage of Pleasure Points is that you are at the mercy of the credit card company. They can change the number of points it takes to go shopping or go somewhere and tell you to go to hell if you complain. The website says many rewards points are worth less than a penny! In a worst-case scenario, the card company can cancel the program altogether when times get tight.

Although I've noticed many rewards cards no longer charge an annual fee, some still do. When they do, then you have to make sure you spend enough money to earn enough points to make that annual fee worthwhile. My husband and I racked up so many points that we were able to fly to Australia, but if you just want to go to Toledo, then the $250 in annual fees we paid wouldn't be worth it. Paying cash for the ticket is probably cheaper.

Lastly, you have to be organized to use Pleasure Points. According to a Harris Interactive poll, 41 percent of people rarely or never cash in their credit card rewards. If you're a list monster like me, you'll be fine. I booked those Australia tickets nine months in advance. And I write little notes to remind myself to cash in the shopping points I earn on another credit card. If I forget, they'll expire.

If you're not detail-oriented, and you know this about yourself, don't go with a credit card that rewards you in pleasure points. For you, cash back is better and we'll talk about that next week.

Resources for Choosing a Rewards Card

There are several great websites that compare and contrast different credit card reward programs. You actually enter your spending patterns and levels and the websites spit out recommendations for you. Here are the best sites: