The Truth About Credit Card Reward Programs

According to a Harris Interactive poll, 41 percent of all reward card holders rarely or never use their reward points. Therefore any additional spending you may have incurred to get those airline miles was a waste.

Finding Out What's Right for You

There are over 1,000 different credit cards to choose from, so this can be quite a daunting task.

The first step is to go to one of the reputable websites out there that compare different credit card options. Websites such as cardratings.com and bankrate.com make it easy to compare cards across many different dimensions.

Secondly, look for the cards for the lowest APR, especially if you think you are going to carry a balance. Next, try to get a card with cash back rewards. The rules for earning and redeeming cash rewards are usually much simpler than those for redeeming merchandise or airlines.

Avoiding Credit Card Rewards Program Pitfalls

Additionally, many rewards require you to spend more than the item is worth. For example, a $300 camera may actually cost you $400 in points.

Many airline miles programs have blackout dates or allocate very few seats to free flyers (only 6 percent of all seats by some estimates), which virtually make your miles unusable.

Finally, try to choose a card that most perfectly fits your lifestyle. For example, if you drive a lot than a gas card that rewards you with 5 percent back on all gas purchases may be a smart move.

Before you sign-up for any credit cards, especially those with reward programs, you should always read the fine print. Some cards require a minimum amount of spending a month in order to qualify for rewards.

Some low minimum reward levels may only be good for the first year of the program, so make sure you know what you are getting into.

Also remember that credit card companies can change terms of a reward program at any time, so try to check the rules of your reward program throughout the year. Second, make sure you stick to your budget and avoid purchases just to earn points.

Third, do not be tempted by cards who offer to give your rewards to charities. According to consumer reports they usually only give 25-50 cents for every $100 that you spend, and you cannot write-off the donation. You are better off just taking a cash back reward from another card, and donating the money yourself.

Finally, try to avoid cards with annual fees; they will only eat into your total reward. Approximately 20 percent of all reward cards have annual fees, so you should be able to find great cards that do not have a fee.

Mellody Hobson, president of Ariel Investments in Chicago, is "Good Morning America's" personal finance expert. Click here to visit her Web site, www.arielinvestments.com. Amar Parikh contributed to this report.

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